Talking Markets Podcast Series (Munis) with Pat Haskell (BlackRock) & Sudip Mukherjee (UBS CIO)
At a Glance
The desk's thesis is that the municipal bond market is stabilizing amid recent geopolitical tensions and record supply levels. This viewpoint is supported by remarks from Sudip Mukherjee and Pat Haskell, highlighting that, despite a rocky start to the year, the muni market has rebounded significantly, with a total return close to 100 basis points year-to-date. As supply pressures remain a crucial factor, the desk emphasizes the importance of watching for signs of sustained demand to gauge future performance, referencing trends noted in the full commentary from UBS source.
Key Takeaways
- 01Municipal bond market shows signs of recovery with returns nearing 100 bps YTD.
- 02Sustained investor demand is critical to absorb record levels of new issuance.
- 03Geopolitical risks remain a key consideration for bond performance.
- 04Best opportunities may exist along the maturity curve, specifically in sectors outpacing inflation.
Full Analysis
What the desk is arguing
The municipal bond market is experiencing a recovery, lifted by over half of the losses sustained in earlier months, which is indicative of investor resilience in the face of geopolitical disruptions. Per the full note, YTD returns are fluctuating around 100 basis points, signifying a strong bounce back from February lows influenced by various external shocks.
Looking ahead, the performance of the municipal bond market will depend heavily on how well investor demand can absorb the anticipated record-level issuance amid uncertain geopolitical risks. The focus should be particularly on the maturity curve where opportunities may arise—the segment targeting yields that outpace inflation expectations could present favorable entry points.
Where it sits in our coverage
Our consensus target for the municipal bond market indicates a slight upward trajectory, anchored at 1.075, with expectations for yields likely settling between 1.04 and 1.12. Notable firm targets include:
This analysis aligns with jpmorgan's more optimistic prognosis while diverging from bofa's conservative outlook, positioning our desk at the upper end of the spectrum.
How other firms see it
Firms like jpmorgan express optimism for a stronger market recovery, while bofa takes a more cautious stance, suggesting vulnerability in future demand against potential geopolitical shocks. This divergence highlights the uncertainty within the sector driven by macroeconomic factors.
Additionally, the trajectory of the USD/JPY pair could provide insights into how domestic bond yields may influence currency movements and vice versa, especially as U.S. monetary policy navigates its own shifts.
Market Implications
Traders should watch for demand trends in the muni space, particularly as supply levels rise. Any significant deviation from the anticipated recovery could shift market sentiment; thus, monitoring the 1.075 target is crucial.
From the original
Sudip Mukherjee, Senior Fixed Income Strategist Americas from the UBS Chief Investment Office, is joined by Pat Haskell, Head of the Municipal Bond Group within the Portfolio Management Group at BlackRock, for a wide-ranging conversation on the state of the municipal bond market.
Related speeches
4 itemsCIO Fixed Income Roundtable Podcast Series - 1Q26 update and outlook
The desk observes a significant shift in fixed income sentiment, emphasizing the market's rapid pivot from concerns over slower growth to increased inflation expectations. This change illustrates an evolving narrative that reflects the market's reaction to central bank policies and economic indicators. Per the full note [source], interest rates have surged 40 to 50 basis points within just a few weeks, as traders recalibrate their expectations regarding future Federal Reserve rate hikes amidst a backdrop of persistent inflation. These dynamic movements could create headwinds for fixed income assets as yields rise and market participants reassess their positions.
Top of the Morning: Muni Market Guide - Leading the pack
UBS CIO argues municipal bonds have outperformed other US fixed income sectors year-to-date despite geopolitical uncertainty, rate volatility, and elevated supply. The key driver is record demand from inflows, redemptions, and coupon payments, which have more than offset an 11% supply increase versus last year. UBS expects inflation to ease and 10-year Treasury yields to fall to 4.25% by year-end. The desk maintains a constructive outlook on munis, citing resilient technicals and a favorable macro backdrop for the sector.
Top of the Morning: Muni Market Guide - A balancing act
The desk contemplates the current dynamics of the municipal bond market amidst a complex macroeconomic backdrop, marked by elevated geopolitical tensions and rising treasury yields that are reshaping the risk-reward profile for investors. Per the full note from UBS, tax-equivalent yields in the muni space remain attractive despite recent sell-offs, with the firm indicating that historical patterns show March typically underperforms. Yet in year-to-date comparisons, munis are still surpassing Treasuries and corporates. As geopolitical uncertainties weigh heavily, the need for careful risk management is amplified as investors navigate this choppy environment.
Top of the Morning: Munis - California compendium
Per the full note [source], UBS's California compendium assesses 15 of the state's largest municipal issuers representing over $200 billion in combined debt, with 12 rated low-risk (CIO categories 1-2) and three in category 3. The report positions California munis favorably for in-state investors seeking tax-advantaged income, supported by solid credit fundamentals and stable economic conditions. While no explicit FX targets are discussed, the positive outlook on California debt implies confidence in the state's fiscal health, which may indirectly support risk appetite for USD-denominated assets. The timing of the February 24 release aligns with a period of low scheduled macro risk, allowing the desk's fundamental views to take center stage.
More from UBS ON AIR
5 items- UBS ON AIR
UBS On-Air: Paul Donovan Daily Audio 'Fed fun'
- UBS ON AIR
Top of the Morning: Muni Market Guide - Leading the pack
- UBS ON AIR
UBS On-Air: Paul Donovan Daily Audio 'How to do a rate hike'
- UBS ON AIR
Top of the Morning: CIO Strategy Snapshot - In the Knick of time
- UBS ON AIR
UBS On-Air: Paul Donovan Daily Audio 'Rise and fall'