Municipal investors probably didn’t expect to make it out of 2020 unharmed, but with the help of the Fed and a few surprises during the Great Lockdown Recession, that’s exactly what they got. Tax-exempt municipals recovered from the panic last spring to turn in 5% returns for the year, closing out 2020 with a recharged fan base that took spreads back to January’s starting levels. Meanwhile, their taxable counterpart raced to the top of the charts with 12% returns. Gangbuster price gains in taxable munis defied near record issuance in that sector and evidences the extraordinary sponsorship of the market’s new sweetheart.
The manageable credit landscape that defined the average government’s experience last year may see even brighter days ahead, thanks in part to Democratic Party control in Washington. New stimulus spending, infrastructure investments, and favorable financing costs all support the municipal recovery and should help keep credit headlines in check. Don’t be fooled into thinking 2021 will be an easy year, however. There are still abundant uncertainties that could shake rates, outlooks and relative valuations so be ready to revise strategy playbooks frequently throughout the year.
For a great start to first quarter planning, check out our 2021 Municipal Outlook, which covers all of these topics and more.