Municipal bond investors face a simple choice: be passive or be active. We believe active, flexible investing is the smarter path—and that’s never been more true than today.
Earlier this year, the municipal yield curve steepened dramatically. Short-term bond yields fell by 40 to 50 basis points, while long-term yields rose by 80. That created a huge opportunity—one that only active investors could seize.
Here’s how: by lengthening their durations and adjusting the mix of maturities in their portfolios, active investors could lock in higher yields and position for eventual yield-curve flattening.
Today, those investors are reaping the benefits as the curve has started to flatten. In September alone, the 20-year municipal bond index returned nearly 4%, compared to just half a percent for the five-year index. Now that’s the power of positioning.
But this story isn’t over. Even after this initial modest flattening, the curve is still steep—twice as steep as average. If long rates continue to fall relative to short rates, as we expect, long bonds will continue to lead. And history tells us that the curve flattening to come could be significant.
This kind of opportunity is just one example of the many advantages of staying active. Passive investors cannot pivot. But active investors can. They can bend like bamboo—adjusting exposures, managing risk and maximizing potential alpha.
In a dynamic market, flexibility isn’t just an advantage—it’s essential. For municipal investors, now is the time to be active.