The municipal bond market produced positive returns in the 2024 calendar year, overcoming some weakness in the fourth quarter. Bond yields rose during the quarter, as the Federal Reserve (Fed) signaled a slower pace of monetary policy easing, and investors focused on the uncertainty following the US election and its policy implications. Investment grade, high yield, and taxable municipal bonds returned -1.22%, -1.08%, and -3.57%, respectively, in the fourth quarter, but they generated positive returns of 1.05%, 6.32% and 1.57%, respectively, for the 2024 calendar year.1 Investors generally favored lower credit quality bonds, which helped high yield municipal bonds outperform investment grade municipals and taxable municipals in both the fourth quarter and calendar year.
Key takeaways:
We expect one to two fed funds rate cuts, as the Fed continues managing monetary policy consistent with its dual mandate of pursuing maximum sustainable employment and low, stable inflation.2 For muni supply, we expect strong new issuance, comprised of $455 billion in tax-exempt munis and $45 billion in taxable munis.3 Also, if historical patterns hold, a unified Republican government may bolster muni performance.
Read the complete quarterly update.
Learn about our municipal bond funds.
Source: Bloomberg L.P., as of December 31, 2024. Investment grade municipal bonds are represented by Bloomberg Municipal Bond Index. High yield municipal bonds are represented by Bloomberg Municipal High Yield Bond Index. Taxable municipal bonds are represented by the Bloomberg Taxable Municipal Index. An investment cannot be made into an index.
Source: Federal Reserve, as of December 18, 2024.
Source: Invesco, as of December 31, 2024.
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Important information
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Image: Guille Faingold / Stocksy
All fixed income securities are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the possibility that the issuer of a security will be unable to make interest payments and/ or repay the principal on its debt. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
Municipal securities are subject to the risk that legislative or economic conditions could affect an issuer’s ability to make payments of principal and/ or interest.
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