Tax-exempt municipal bonds offer significant value relative to taxable bonds. After tax-adjusting yields on a like-for-like basis, munis provide more yield, lower credit risk, and strong technical underpinnings across a wide range of issuers.
The very front end of the yield curve is now very steep as the market prices in multiple Fed rate hikes. Investors do not need to move far out the curve to capture a material increase in yields, making incremental duration extensions and the associated liquidity enhancement attractive.
Global developed bonds offer diversification and yield
International developed market government bonds have priced in more central bank tightening than may be delivered, especially from inflation-focused central banks; short-to-intermediate duration offers attractive yields and diversification from US rate cycles.
The Fed is going to be on hold because Chair Warsh anchored the long end, front-end rates have wide dispersion with no forward guidance, oil prices are down 30% from highs, and an Iran agreement may be near. Yields are elevated and data should improve into summer, so investors can safely buy duration here.