Municipal market insight

Muni bonds: great expectations for 2019

Jan 9, 2019

Amid increased volatility and flailing equity markets, municipal bonds stood their ground in 2018. We believe 2019 is shaping up to be an even stronger year for muni bond performance.

Municipal market outlook

  • We expect positive returns for the municipal bond market in 2019, driven by net negative supply and a less hawkish Federal Reserve.
  • The tax advantages of municipal bond investing are now more compelling after the Tax Cuts and Jobs Act of 2017.
  • Higher equity market volatility increases the appeal of muni bonds for their relative stability and as a ballast to equity risk.

Investment ideas for 2019

1. Stay invested. Sitting in cash means missing out on coupon payments. A buy-and-hold approach to municipal investing provides better potential for capturing total return, which we expect will be made up largely of coupon return versus price return throughout this year.

2. Position tactically. Seasonal patterns should be more true to form this year. Increase duration ahead of negative net supply periods and reduce duration when supply is poised to outpace demand.

3. Diversify opportunistically. Consider high tax states including New Jersey, New York, Massachusetts, Maryland and California, where the SALT curtailment will have the largest effect on individual tax payers.

4. Don't dismiss high yield. We wouldn't recommend an overweight currently given uncertainty around Puerto Rico issuance, but we believe some exposure can be beneficial for income generation within a well-rounded portfolio.

Peter Hayes
Head of Municipal Bonds
Peter Hayes, Managing Director, is Head of the Municipal Group within BlackRock's Global Fixed Income group and a member of the Global Fixed Income Executive ...
James Schwartz, CFA
Head Credit Research Analyst, Municipal Credit Research
Jim Schwartz, CFA, Managing Director, is Head of Municipal Credit Research within BlackRock's Global Fixed Income group. He is a member of BlackRock's Municipal ...
Sean Carney
Head of Municipal Strategy, BlackRock Investment Strategy Team
Sean Carney, Managing Director and Head of Municipal Strategy and Primary Markets team within BlackRock's Global Fixed Income Group. He is also a member of the ...
To obtain more information on the funds including the Morningstar time period ratings, please visit:
Strategic Municipal Opportunities Fund
National Municipal Fund
High Yield Municipal Bond Fund
California Municipal Opportunities Fund
New York Municipal Opportunities Fund
New Jersey Municipal Fund
Pennsylvania Municipal Fund

The Morningstar RatingTM for funds, or "star rating," is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

Performance data quoted represents past performance and is no guarantee of future results. Investment returns and principal values may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. All returns assume reinvestment of dividends and capital gains. Current performance may be lower or higher than that shown. Refer to for most recent month-end performance.