“Now is the right time to invest” ... U.S. taxable municipal bonds gain appeal

[Financial News] With yields on U.S. taxable municipal bonds reaching historically high levels, an analysis found that their investment appeal has increased.
According to Nuveen Asset Management’s “Fourth-Quarter Outlook for the Taxable Municipal Bond Market,” released on the 5th, the yield on the Bloomberg Taxable Municipal Bond Index stood at 5.84% as of September 30. That was the second-highest level in roughly the past decade, behind October 2023 (5.86%).
The U.S. taxable municipal bond market struggled in the third quarter of this year as a sharp rise in interest rates drove bond prices down. Nuveen cited rising tensions in the Middle East and high oil prices as reasons the bond selloff continued. The Federal Reserve System’s (Fed) hawkish stance, rising federal government debt and robust economic data added to upward pressure on interest rates.
Nuveen noted, however, that the decline in bond prices was not due to deteriorating credit quality. Fiscal revenues for U.S. state and local governments have increased, while labor market and consumer conditions remain favorable, leaving credit fundamentals solid. It also pointed to the stability of credit spreads and trading conditions despite market volatility.
Total U.S. municipal bond issuance is projected to reach a record of about $600 billion this year. By contrast, taxable municipal bond supply is expected to remain limited, creating favorable supply-demand conditions.
As an investment strategy, Nuveen recommended selectively extending duration into the 6-to-11-year range, focusing on high-quality general obligation bonds and essential-service revenue bonds. It identified transportation and water and sewer as promising sectors, given their resilience even during market downturns. By contrast, it advised a selective approach focused on the highest-rated bonds in healthcare and higher education, taking into account the potential impact of federal policy changes.
Nuveen also noted that state-level tax measures addressed in the U.S. midterm elections could affect municipal bond credit. Seventeen states have implemented or proposed property tax cuts, while several others are considering introducing new income taxes or have already done so.
Daniel Close, Nuveen’s head of municipal bonds, said, “Income has been the main driver of municipal bond returns,” adding, “For institutional investors with a medium- to long-term investment horizon, securing today’s high entry yields is more important than waiting for the direction of interest rates to become clear.”

[email protected] Seo Min-ji Reporter