BlackRock, Once Wary of Muni Bonds, Says It’s Time to Buy Again
(Bloomberg) -- BlackRock Inc.’s strategists, who three months ago advised investors to pull back from municipal bonds, now say it’s time to shift back in.
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The selloff that raced through fixed-income markets last month drove state and local government debt to the steepest loss in over a year, pushing yields higher as strong economic data and the presidential election cast uncertainty over how deeply the Federal Reserve will cut interest rates.
But with yields still elevated — and prices settling from the turbulence set off by Donald Trump’s victory last week — BlackRock strategists led by Patrick Haskell said in a note Thursday that it’s a good time to lock in the higher yields before the central bank starts nudging rates down further. They suggest a so-called barbell strategy focused on holding both short-dated debt and those with maturities in 15 to 20 years.
“We are past the risk event in elections,” Haskell said. “We are telling people that if the Fed goes to neutral, it is time to take some duration risk.”
The move is a shift for the BlackRock strategists, who in August advised investors to take a cautious stance to the municipal market after it rallied strongly in anticipation of the Fed’s shift to easing monetary policy. The central bank is expected to cut its benchmark rate for a third straight meeting in December, but there’s significant uncertainty over how much further it will go given that Trump’s tax-cut and tariff plans are likely to fuel inflation.
Haskell and his colleagues said they expect the market to remain volatile for the next few weeks until “both the impact of the election outcome and the future path of Fed policy are better understood.”
Still, they expect the municipal market will benefit from a slowdown in the pace of debt sales, which rose ahead of the election as states and cities moved to lock in relatively low rates. Governments have sold $446 billion of municipal bonds this year, up about 38% from last year’s pace.
“We see the recent rise in rates as an opportunity to put cash to work and increase income in portfolios,” they wrote.
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