00:00 Speaker A
So, it seems like the potential worst-case scenario has been taken off the table in terms of the tax bills implications for munis. Talk to me about that.
00:09 Speaker B
Yep. I mean, to start the year, we definitely had a lot of headline around the muni market. I feel like we get that from time to time with the change in administration. And maybe this time we really thought there was going to be a chance that the tax exemption would be disruptive, uh, disrupted, nevertheless, uh, you know, potentially removed. So it’s been great to finally feel some sense of relief come back to the market, uh, believing that that’s off the table. Um, I don’t think that means that munis are safe. I think that there will be, um, you know, just tangential, um, implications with respect to maybe endowment taxes, um, maybe certain sectors of the market still on the table if the administration is looking for dollars, but the tax exemption in totality, as it stands and what we all look for when we’re investing in the municipal market, seems to be okay for now.
00:58 Speaker A
Yeah. And you mentioned that’s a removal of a big headwind, but there are also still other potential policy risks on the table for munis. Why is now the right moment for investors to be looking into municipal bonds?
01:10 Speaker B
Yeah, um, and it’s nice to actually feel that it’s a great time to invest in municipal bonds. Um, we have a few really nice, you know, tailwinds here. And I think the yield environment, first and foremost, for a really long time, we were in a period where investors weren’t really excited about where actual yields were. Why invest? Why not just sit in cash? Um, so to see yields in being an environment where we’re actually seeing nominal yields north of 100 basis points higher than they’ve been over the last 10 years on average across the curve is pretty exciting. Like there is meaningful income behind that. Um, and then I would say from evaluation perspective, when you compare it to treasuries, which is a natural for most muni investors, the valuations are saying that the muni market is attractive. Like lean in, dip your toe in. And then if we look from a credit profile, um, which is, you know, a real strength that we have in the muni market, credit fundamentals remain strong, and I think that’s a really important message. So you have three major boxes ticked, and it’s almost like, what else are we waiting for? The time is right.
02:45 Speaker A
And since you mentioned it, I am curious about any sort of competition that might occur with US treasuries. We have some folks who come on and say they still see the 10-year hitting above a 5% yield this year. Does that present a headwind to muni bonds in any way? Talk to me about that.
03:07 Speaker B
Yeah. I mean, sure. So I think we’re always looking at, um, muni’s fair value versus treasuries. I think we are looking at taxable muni versus treasuries. I think that there is a preference or a belief that treasuries offer more liquidity versus munis. Uh, I think that the current market landscape is actually encouraging us to look beyond traditional fixed income in munis and treasuries and look at corporates, investment grade corporates, right? And looking at that pack of four, um, almost as close as, you know, I guess the credit profiles you can expect, and looking as to where the value and where the opportunity is across all four of them. So using treasury as the base point, um, even though it’s no longer triple A, um, but using that as our baseline, where we want to get started and what we think the value is. Excuse me. Um, and what the actual portfolio composition would look like. I think there’s going to be opportunity across the board and across those four sectors, um, just given the uncertainty and the volatility that’s going to stay with us through the end of the year.