The Case for Municipal Bonds - Eaton Vance - YouTube

The tax-exempt municipal bond market

is one of the largest investment sectors in the U.S.

in terms of assets and issuers.

The Municipal Bond Market -- or, as we call it, the Muni Market --

is composed of over US$3.7 trillion and over 60,000 issuers.

The taxable muni market is a subset of the overall muni market,

and has been attracting the attention of international investors.

Taxable muni bonds were first introduced as an outgrowth of the US Tax Reform Act of 1986,

and they're a way to give municipalities the flexibility to finance a wider range of projects,

including those that might not qualify for tax-exempt status

under restrictions imposed by the U.S. Treasury.

As a result, the taxable muni market has experienced significant growth

and become an attractive asset class for institutional investors

both domestically and internationally.

The taxable market is about US$500 billion and growing

and there are more than 13,000 individual issuers.

Muni bonds are debt obligations issued by states, cities, counties and other governmental entities

which use the money to build schools, highways, hospitals, sewer systems, and many

other projects for the public good.

The muni bond sector has a remarkable credit history of low defaults,

as most issuers are backed by the taxing authority of state and local governments

or dedicated revenue stream of municipal infrastructure projects.

The muni bond market offers non U.S. investors access to a market which helps to fund everything

from bridges, highways and tunnels to hospitals and universities.

U.S. infrastructure needs continuous funding and muni bonds support about 75 per cent

of muni infrastructure projects in the U.S.

With such a diverse market, you can imagine the investment opportunities this presents

for active managers like Eaton Vance.

A portfolio of muni bonds will typically look a lot like a yield play,

they actually offer a yield of “treasuries-plus” --

which at the moment is about 3 to 4 per cent prior to currency hedging.

The securities are generally A-rated or better,

and for the past 10 years taxable muni bonds have generated

the highest total return among the various classes of

global investment-grade fixed income securities.

Muni bonds have an excellent credit default history.

Their default rate is very low because they are backed by taxing authorities

and other dedicated revenue streams.

For instance, since 1986, there have been only 81 muni defaults.

This compares with 1,378 corporate bond defaults.

They also offer diversification benefits as part of a broader fixed income portfolio,

offering relatively low correlation with both equities and lower-quality bonds.

Well, we think there will be a modest flattening of the yield curve this year.

With slow global economic growth and little inflationary pressure

the drivers for long-term yields are relatively weak.

In addition, during the last four interest rate hiking cycles,

municipals have outperformed treasuries.

Eaton Vance is one of the longest-tenured firms in the Municipal market.

We have over 37 years of experience and a measurable track record going back to 1978.

With over US$32.5 billion in managed municipal bond assets,

we are one of the leading municipal managers in the United States.

We have one of the largest and deepest municipal teams in the industry

and we’ve succeeded in delivering strong long-term performance

with a focus on producing solid income for our investors.

From a product standpoint, we have one of the broadest selections of

municipal strategies in the marketplace.

And we offer strategies that span the entire yield curve and credit spectrum.

Most importantly, for our institutional investors, we have the willingness and flexibility

to manage mandates that meet client-specific needs and objectives.