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4 Big Questions Answered About the Current Muni Market
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- Why are my Muni Bonds down?
Muni bond prices declined primarily due to rising interest rates. With the Federal Reserve trying to manage inflation, bond yields will change accordingly.
Higher interest rates make yields on existing bonds with lower coupons less attractive, causing their prices to decrease. In turn, lowering rates have the opposite effect on value.
However, recent Federal Reserve rate cuts have caused prices to go up and yields to go down, thus reversing the trend of a rising rate cycle on fixed-income securities.
It’s important to remember that unless you sell before maturity, your principal is safe, and like other asset classes, the value will vary depending on economic conditions.
- Is this the right time to buy Muni bonds?
Yes, it is an extremely favorable time to consider buying municipal bonds since we are currently in an interest-rate-reducing cycle with the Federal Reserve. Locking in current returns before further rate cuts will result in better yields.
However, before making any decisions, assessing your financial goals, risk tolerance, and investment strategy is essential. We recommend consulting with a financial advisor to determine if buying Muni bonds aligns with your investment objectives.
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The Critical Question: Will the Fed continue to lower rates?
The Fed is expected to continue lowering rates as inflationary pressures ease. They plan incremental reductions in an effort to reach their 2% inflation target rate.
Economists have predicted another half-point reduction before year-end. With an economy firing on all cylinders, predicting timing is difficult, especially when spending is still strong.
- How low will rates go?
As mentioned, the Fed’s target inflation rate is 2%, and its mandate is to adjust rates accordingly to achieve that goal. While we can’t be certain how low rates will go, we recognize that depending on how the economy responds along the way, it will be a gradual process.
- Why are my Muni Bonds down?
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Bonds are subject to market and credit risk of the company as well as interest rate risk and may be worth less than the principal amount is sold prior to maturity. Bonds may be subject to AMT, state, or local income tax depending on residence. Please consult with your tax advisor. Discount bonds may be subject to capital gains tax. Prices and availability may change at any time without notice. Insured bonds do not cover potential market loss and are subject to the claims-paying ability of the insurance company.