Expert Portfolio Manager Discusses Municipal Bonds and Rate Hikes
Nisha Patel, a senior portfolio manager at Parametric Portfolio Associates® LLC (“Parametric”), recently appeared on CNBC’s “The Exchange” to discuss the current state of municipal bonds and her predictions for interest rate hikes.
Municipal Bonds at 15-Year Highs
According to Patel, municipal bonds are currently experiencing 15-year highs, particularly in the intermediate and long parts of the yield curve. This is great news for investors residing in high-tax states like California, New York, and New Jersey. These investors can enjoy tax-equivalent yields that are incredibly rewarding. For example, an A-rated ten-year maturity bond can offer a tax-equivalent yield of 9.5% for those in high-tax brackets. New York City residents could even see a taxable equivalent nearing 10%.
The End of the Rate-Hiking Cycle?
Patel suggested that the Federal Reserve may be approaching the end of its rate-hiking cycle. She pointed out that the recent rise in rates has already taken into account strong economic data and the possibility of an additional rate hike. According to Patel, the market has already factored in these variables, leading her to believe that there may be no more rate hikes or perhaps just one left.
Preparing for Reduced Volatility
Patel emphasized the importance of preparing for a period of reduced volatility. She advised clients and investors to consider positioning their portfolios for fixed income and hedging against the possibility of rates eventually coming down as economic growth slows.
Investing in This Environment
When asked about the best way to invest in this environment, Patel recommended opting for separately managed accounts over individual securities or funds and ETFs. She cited the advantages of customization and potentially lower pricing as reasons for this recommendation.
Hot Take: Municipal Bonds Offer Lucrative Opportunities for High-Tax Bracket Investors
Municipal bonds are currently experiencing 15-year highs, particularly in the intermediate and long parts of the yield curve. This presents a lucrative opportunity for investors residing in high-tax states. With tax-equivalent yields reaching as high as 9.5% or even 10% for some, these bonds offer attractive returns. Additionally, Nisha Patel suggests that the Federal Reserve may be nearing the end of its rate-hiking cycle, meaning there may be no more rate hikes or only one left. Investors should prepare for reduced volatility and consider positioning their portfolios for fixed income while hedging against potential rate decreases. To navigate this environment, separately managed accounts are recommended for their customization and potentially lower pricing.
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