Transcription:
Jessica Lerner (00:03):
Hello everyone and welcome to another Bond Buyer podcast. I'm Jessica Lerner, markets reporter at the Bond Buyer. I'm happy to welcome Matthew Gastall, executive director and head of Wealth Management Municipal Research and Strategy at Morgan Stanley, and Daryl Helsing, vice president and fixed income strategy with the Wealth Management Global Investment Office. Welcome, Matthew and Daryl.
Matthew Gastall (00:29):
Hi Jessica. Thanks so much for having us on. I think this is our third Bond Buyer podcast, so it's always an honor and a privilege to be on, so thank you.
Daryl Helsing (00:39)
Great to join you, Jessica.
Jessica Lerner (00:41):
Great to have you back again. Looking forward to a great discussion with you both. 2022 marked an extreme selloff amid a rising rate environment. Market participants were hopeful at the start of 2023 for a better year. While not as volatile as 2022, there have been several headwinds including regional bank failures, the debt ceiling impasse and continued Federal Reserve policy uncertainties. We'll talk about all of that and more today. Let's dive right in. Volatility in May led to the third monthly loss of the year, but muni total return is still notably positive for 2023. June historically starts out softer. As we are in the thick of the summer reinvestment cycle, how do you see the next two months and change faring for municipals?
Matthew Gastall (01:30):
Well, that's a great question Jessica, and thanks so much for getting right into, for the most part, what we believe over the next couple of months will probably be some of the more important months for 2023. It's interesting that, to your point, needless to say, we just said we came off of a month of losses for the most part with May, but total return based on the Bloomberg Municipal Bond Index, for the most part, still positive by about 2.1% as of this actual recording. If that metric were to be annualized, let's say if the performance actually continued exactly the way it has, which of course it most likely will not, but that annualized is nearly a 5% total return for municipals for this year. And I think the real kind of important thing to stress is that a very large portion of that total return from the index of course is tax-exempt coupon income for the most part.
(02:27)
So truly a good year for performance so far, specifically over the course of the past five months truly. I think a couple of things to kind of that are important to mention as far as setting the stage, if you will, as far as some of the dynamics that we've seen in the market that are very important for this particular year. From our perspective, we're very much looking at a very notable supply-demand imbalance, and I think we'll probably talk about supply a little bit more later in the show. But needless to say, supply is down just over 24% year-to-date, year-over-year for 2023 versus last year. A very large portion of that, of course, is a function of higher interest rates, right? We've of course had some apprehension a little bit with some issuance as a result of the debt ceiling. Fortunately, it does seem as if we've seen or experienced some alleviation of course with some of those anxieties for the most part now.
(03:26)
But again, higher rates of course has helped to slow new money borrowings. Some refinancings have of course fallen out of the money. I think the other big thing to stress too is that of course, TCJA, Tax Cuts and Jobs Act from 2017, I think as many industry professionals know, limited the abilities of municipal issuers to advance refund, of course, outstanding debts or pre-fund outstanding debts, which of course that is also added to some of the supply lull that we've seen throughout the course of this year. But then when we kind of transition, right, if we pivot a little bit away from supply, focus a bit more on demand. First and foremost, open-ended mutual funds, right? We've seen some outflows over the course of the past couple of months. Actually, just before this recording, we found out of course, that we did have an inflow very recently, but the beginning of the year we had some very significant demand in open-ended funds, some very strong inflows at the opening of the year, and at the same time, ETFs, right?
(04:25)
ETFs continued to grow in market share. We've seen about $1 billion worth of net inflows into ETFs throughout the course of this year. That of course has been a very important dynamic as far as demand. And the other kind of very important focus, which we think is very significant dimension are redemptions, right Throughout the course of the past five months, mostly we've seen over $100 billion in redemptions return back to investors. When we're looking forward now, June, July, and also August, we're anticipating roughly around $114, $115 billion in redemptions, of course, for the most part being returned in many cases to households. Now, of course, some of those monies they come back into the marketplace and help to kind of bolster redemption-driven reinvestment demand. Some do not, but again, we are for the most part, as you kind of alluded to, moving into a very, where, of course, a bit closer to that very healthy seasonal period of the summer where we tend to have healthy, redemption-driven reinvestment demand and lower supply.
(05:31)
And we just published a couple of weeks ago our research, our monthly research publication, the Municipal Bond Monthly, and we entitled it As Good as it Gets," right? And kind of what we were focusing on as far as the theme of that publication was that, okay, so we've been through the first five months of this year, we are experiencing a little bit of the supply-demand imbalance, ratios for the most part in the 10-year space were close to around 70% of Treasuries with municipals, so our performance has been very strong. However, and this is kind of a big of course point to stress that supply-demand imbalance, it might actually be exacerbated when we go a bit more into July, August and the beginning of September. If new issue supply comes down a little bit — keep in mind that based on averages from 2000 to 2022, new issue supply generally averages about a 32% decline over a 30% decline from June to July.
(06:28)
So if we move our way through this period, and of course we eventually start to see even lower supply, and again, those very healthy redemptions coming, this supply-demand imbalance could actually be exacerbated a little bit. Now, big thing to stress right now we're in the middle of that pre-summer new issue supply push. We just had an over $15 billion print on 30-day visible at the beginning of this week. We also, of course, are kind of working our way through a plus $8 billion calendar. So while supply very well may be healthy over the next couple of weeks, that pre-summer new issue supply push, and particularly looking at the 10-year right now, trading around that 3.70% to 3.80% range, we start to wonder, "Could this be as good as it gets? Right now while supply is healthy and rates from a nominal perspective or higher, could this be as good as it gets for this particular economic cycle?"
(07:18)
We won't know the answer to that question for some time, but we're wondering if investor interest returns in the fall, supply starts to pick up again toward the back end of September, if we're in a period where let's say interest rates have gradually come down, let's say that the Fed continues to make progress in combating inflation, or if we start to see some economic softening as far as of course, growth is concerned, both of those dynamics could lead to rates coming down the belly and the long end of the yield curve. We're just not sure, but the question is if investor interest returns after the summer to that lower nominal rate environment, then potentially it could have been or could be a missed opportunity now in June. But we'll see exactly how that plays out, but that's what we're looking for and kind of focusing on over the next couple of months.
Jessica Lerner (08:05):
Thanks, Matthew. So kind of circling back to municipal performance, how are munis performing versus corporates? Is there value for crossover buyers in the market currently?
Matthew Gastall (08:17):
So, we actually think that crossover interest has been one of the more important dynamics from our perspective for this year in 2023. It's a very important question, and again, we're kind of referencing that supply-demand imbalance that we were talking about before, seeing ratios in the 10-year space come down to roughly 65% to 70% of Treasuries. For the most part, muni performance has been very strong versus Treasuries and also to credit to corporates as well, which I'll turn it over to Daryl and Daryl's going to speak a little bit to credit in just a second. But I think what's very important specifically as far as investment strategy is concerned, we just released a publication just over a month ago, it was called "All Together Now." wWe were kind of working a little bit off of a play of one of the old Beatles song and the theme or kind of the point that we were attempting to make in that publication is that when you actually go out to take a look closely throughout the municipal bond yield curve, for the most part, yield levels, not from a nominal perspective, specifically those under about the seven year AAA MMD, for the most part, are actually still close to 14 to 15-year highs.
(09:29)
So that's very notable from an absolute perspective. Now, those numbers as far as comparisons over the course of the past decade and a half, they do come down a little bit once you start to focus a bit more on the belly and the long end of the yield curve. But again, the short end right now still close to those 14 to 15-year highs, which is very important, right, from an absolute perspective. So many of the clients that we speak with, the questions that come to us, well, absolute versus relative, despite the fact that municipals have performed so well versus Treasuries and versus credit, and of course we're starting to see some crossover interest there, particularly on the institutional side and focusing on some of more of the taxable counterparts. The question that we receive from clients would be or has been, but the absolute levels are actually, particularly on the short end, quite appealing.
(10:18)
And that's exactly right. So from our take, there's basically kind of two important strategic focuses or takeaways from of course, these relative versus absolute dynamics. Number one, if you're a low- to middle-tier bracket investor, for the most part, it probably is a good idea to focus a little bit more on high-quality corporate bonds, agencies if you're flexible with repayment, maybe dollar cost averaging into mortgage-backed securities. And of course, that's why we thought with this particular podcast, it might be fun to kind of expand our horizons a little bit, talk a little bit more about other asset classes, but some of the taxable instruments are making even more sense with low- to mid-tier federal bracken investors. Once you start to focus a bit more on, of course, those in high-tax states, high-bracket investors, especially when you're factoring in the 3.8% Medicare surtax and the limitation of the state and local tax default deduction where, and if that's of course relevant, then munis still look very attractive when you're factoring in all those exemptions, particularly for the New York City buyers, the California buyers, and the New Jersey buyers for the most part, when you're focusing a bit more on the short end of the yield curve, specifically under about seven years roughly.
(11:36)
So again, very important from the kind of the absolute to relative perspective on everything. Now, again, I think some kind of investors give a little bit of pushback, but whenever we're comparing the two, and again that all together now and leveraging all the fixed income instruments to make the most of what we're looking at for close to a decade and a half high-interest rates. But I think the big thing that kind of stress is that muni credit worthiness obviously very strong for the most part. So whenever you do start to get close between maybe five, 10, even 15 basis points between a corporate bond and a muni, some people will disagree, but sometimes I will kind of even favor the muni just of course because of the long-term historical credit worthiness of the asset class. But that's obviously a choice of personal preference. But switching gears a little bit, turning over to corporate bonds into credit, we'll get, talk a little bit about some of that crossover interest and of course corporates with Daryl. So Daryl, over to you.
Daryl Helsing (12:33):
Thanks, Matt. So Munis have outperformed corporates since monetary policy turned contractionary around the start of 2022, and this has been based on stronger fundamental and technical factors. In regards to credit, we continue to advocate a defensive approach maintaining an up and quality focus. We suggest a preference for investment grade over high yield, given a weaker growth in earnings outlook, alongside tighter monetary policy. So for crossover investors like banks, insurance companies, low-tax brackets, individual investors, valuations favor corporates over munis on a tax-adjusted basis at this time. However, for individual investors and the top income brackets, especially residents facing high state taxes, the yield advantage still resides in municipals.
Jessica Lerner (13:27):
Thanks Daryl for that. And I'll throw you another question now, speaking of crossover, and it's a little bit interesting to move away from munis for a quick second. What are your outlooks for other fixed-income classes such as credit, high yield or even federal agencies? Where and how would you position there?
Daryl Helsing (13:48):
Great question. We actually launched a publication called "A Fixed Income Monthly" recently, which provides insights and recommendations pertaining to these taxable sectors of the fixed-income market. I'll start by touching on agency mortgage-backed securities. There we expect technicals to remain poor as the two largest holders of MBS, the Federal Reserve and banks, will likely continue to reduce holdings through the end of 2024. However, we do believe this risk is now priced to some extent, and we think that agency MBS now offer a noteworthy yield pickup over comparable U.S. Treasury securities, and in our view, they appear attractively valued from a longer-term perspective relative to investment grade corporate debt. Our strategy in this sector is to build positions through dollar cost averaging, which provides investors an opportunity to take advantage of any renewed weakness moving forward. Now, turning to credit, as I had mentioned earlier, we are defensive there and have a preference for up and quality and we have a preference for investment grade over high yield. We think the setup for lower-quality companies and cyclical sectors can get more challenging into early 2024, especially as maturity walls draw closer, and we expect credit stresses to build further over the coming quarters. We also anticipate that performance dispersion across and within various sectors of the market will persist as some industries and companies will be better able to navigate a transitioning macro climate. And as such, there should be ample opportunity to add value through active security selection.
Jessica Lerner (15:50):
Thanks, Daryl. And switching gears a little bit, do taxable munis still make sense? I mean, what type of investors are looking for taxables. Matthew to you?
Matthew Gastall (16:02):
Yeah, it's a great question. So taxable munis from our perspective absolutely still do make sense for a couple of different reasons. Number one, again, kind of focusing on that short end of the yield curve, again, taxable munis, the nominal rates that are actually being offered are actually to be fair, quite attractive, not just for low- to mid-tier bracket investors, but also for even some high-bracket investors. Some of those yields actually are quite attractive. The two kind of caveats, if you will, that we would mention with taxable securities, number one, of course, since the provisions that were passed during TCJA, The Tax Cuts and Jobs Act, needless to say issuer limitations on the abilities to advance for fund debt. We saw throughout the course of 2020 and 2021, a number of refundings, which I think obviously many industry professionals listening to the podcast are aware of.
(17:00)
Many refundings were actually completed successfully with taxable issuance for the most part, and that of course was a dynamic that surfaced as a result of just pure nominal interest rates being as low as they were back during that particular timeframe. Why that is so important for investors currently as far as focusing on taxable structures for the first time, really as far as what we saw that particular period, and we have seen a little bit in the past, but really one of the more significant times where states, counties, cities, districts, townships were actually issuing for the most part taxable GOs, right, GOs, which of course, were paying taxable yields. And then of course we also started to see water and sewer systems, public power systems, some of those essential service revenue systems that were also issuing taxable debt. So the reason that's so relevant is that this is one of those times when if you can potentially find a paper or source the paper considering taxable municipals if you're a low- to mid-tier bracket investor and also focusing on some of those maybe good old fashioned or bread and butter structures with GOs or essential service revenue systems, we think that that's a great way to, number one, earn some yield.
(18:19)
And number two, focus on those types of structures, which generally from a historical perspective tend to be mostly creditworthy. Now of course, looking at other types of taxable issuance, whatever that may be, needless to say, of course, can provide some value to investors as well. But for some of those entities that are not, for the most part, actual municipalities or essential service issuers, for the most part, there can very well still be advantages there, but we would just basically say that whether they qualified for the exemption or not, we'd still probably take a look a little bit of a closer look at the operating and non-operating revenues of those particular entities when kind of looking to invest. So that's number one. Number two, when it comes to liquidity, needless to say, taxable issuance does not, for the most part, encompass the same size of the marketplace, obviously as tax-exempt municipals do.
(19:12)
So whenever we do kind of focus or recommend taxable bonds to clients, we kind of do tend to stress a little bit, maintain a buy-and-hold perspective for the most part if you can do so. Liquidity tends to be a little bit weaker, of course, in taxable bonds than it does with tax-exempt securities. But if you're focusing a bit more on that buy-and-hold mentality, and specifically if you're focusing on the short end of the yield curve, then obviously that's something that could potentially be beneficial. But number one, of course, focus very much on the GOs and essential service structures if you can now, and number two, just be mindful of the liquidity. But to be fair, some of those yields of course are quite attractive for entities and for even households that typically sway a little bit more toward the taxable side.
Jessica Lerner (20:00):
Thanks, Matthew. We're going to take a short break, but we'll be right back with Matthew Gastall and Daryl Helsing.
And we're back with Matthew and Daryl from Morgan Stanley. I wanted to get back into supply, which we know is down around another 25% year-over-year from what was already a down year for issuance in 2022. Do we think once the volatility settles, issuers might bring more deals. Matthew?
Matthew Gastall (20:30):
Well, it's always a difficult question because for the most part, Jessica, it tends to be a bit of a function, of course on demand and interest rates, but I think some of the few points that we would maybe add there. Of course, as we mentioned at the beginning of the podcast, supply is a little bit lower because of higher interest rates. That of course has postponed some or kind of slowed some new money offerings, some refundings have fallen out of the money. We of course have those TCJA provisions which have added a little bit to, of course, the lower supply that we've seen this year. I think what's really important to stress, which is interesting, is that needless to say, there's so many of us who have been in the industry for 20-plus years, and we look at the current period from the perspective of interest rates.
(21:16)
And I know for as long as we've been writing the strategy publications at Morgan Stanley, which has been about 13 to 14 years, we have been very much discussing and writing about from a comparative basis lower interest rates. But when you go back and kind of chart out rates specifically to the beginning of the 1980s, for the most part, I think it's really important to stress that we're seeing that same dynamic with the short end and the long end again. And I guess what I mean by that is that yes, of course, on the short end of the yield curve, and again specifically under seven years, those rates are close to those 14 to 15-year highs, and they're closer to the averages that of course we've set over the course of the past 40 years. But when you really go to the belly and the long end of the yield curve, believe it or not, where we are right now, we are actually quite a notable ways away from those averages.
(22:06)
We're definitely very well under those averages in the belly and of course on the long end as well. So that being said, I think it's an important kind of point to bring up as far as from the perspective of course, the possibilities of considering issuing debt and of course with factoring in what supply might look like for the most part. So yes, short end, of course, those yields quite high, but belly and long end, they're really a bit more off of the long-term historical averages than one would think. I think what's interesting to note though is that needless to say, interest rates, if you chart them out, one, if you look at it, you could probably make the argument that it almost looks as if we're, we've been in a 40-year bull market of rates and interest rates have done nothing, but of course they ebb and flow back and forth, but they very much have gradually come down throughout the course of those 40 years.
(22:55)
So the means and the averages of course can be a little bit tricky to work with, but again, belly and the long end, they're a bit more off of the long-term averages under the averages than one would actually believe. So when kind of focusing a little bit on the second half of this year, and again that focus, that kind of dovetails back into our strategy message right now, I think the big thing to focus on is, number one, does the Fed continue to make progress in its efforts with controlling inflation? Of course, there are debates that moving from 9% to 5% may be much easier than moving from 5% to 2% to 3%. But it does, of course, it is clear they have been making progress, what they're doing is working so far. If that continues, and then let's say if we get a little bit of economic slowing, for the most part as far as growth is concerned, that could cause rates in the belly and the long end of the yield curve to very much come down, which then could make for an even more favorable environment as far as issuing debt and as far as supply is concerned.
(23:57)
So that very well could create a little bit of a supply uptick toward the back half of this year and maybe even moving into 2024. But again, kind of once again from the investor perspective, we're seeing that pre-summer supply push right now. It's not really something where we're kind of advocating cannonballing in, if you will, for the most part. But while supply is healthy over the course of the next month, in case that supply lull is exacerbated over the course of the summer, we think doing some dollar cost averaging and kind of doing, adding a little bit of exposure before some of that supply potentially goes away is probably a good idea to consider from an investor perspective.
Jessica Lerner (24:34):
So circling back to what the Fed might do, some market participants are expecting at least one more rate hike. Daryl what do you think will occur and how might this affect U.S. Treasuries and munis?
Daryl Helsing (24:47):
We think we've arrived at the peak rate of this tightening cycle. We expect the Fed to hold the policy rate steady until a first cut in the first quarter of 2024. The impact of tighter credit conditions is still uncertain as our policy lags. And while the Fed path dictates the moves in the front end of the yield curve, the market is influenced by a combination of growth and labor markets in the back end of the curve, and further deceleration of inflation should provide a path lower for yields. However, progress here should be monitored as the market has repeatedly been surprised by the stickiness of inflation throughout the last 18 months.
Jessica Lerner (25:34):
Thanks. So, Matthew, we had 16 straight weeks of outflows, but Refinitiv Lipper just reported that $460 million was added to muni mutual funds this week. Is this a one-off or are we going to see this trend continue?
Matthew Gastall (25:53):
Boy, that's a tough one to call, and I would probably say, Jessica, that it's most likely a function of redemptions for the most part, picking up very significantly this month. As we mentioned at the beginning of the call, we of course are anticipating over $100 billion over the next three months in redemptions coming back to investors, which essentially means that this summer we're going to receive more redemptions than what we've had so far year-to-date for all of 2023. So very significant, and from our perspective, maybe more of a function of redemption monies being returned back to investors. I think it's really important or really interesting to note as we were discussing at the beginning of the show, that flows into open-ended funds, very healthy for the most part at the beginning of this year, the last few months we've seen some outflows from the of course, but ETFs, right?
(26:46)
When you take a look at, well, what's been going on with open-ended funds, ETFs still for the most part continue to grow market share. And on some of the weeks where we've actually seen outflows from funds, we've actually seen inflows into ETFs, which I think is kind of a very notable dynamic to focus on. And I think needless to say, as you and I have discussed in the past, I think in some past articles, municipals and many facets of investing, for the most part, it very well may never be right, one size fits all, it probably should never be a one-size-fits-all type of practice. And each one of those products for the most part helps to provide very important benefits for investors for what they're looking for. When you're focusing on individual bonds, for the most part, you can help to tailor accounts to pay coupons, and to also for the monies to come do on redemption dates that you see fit and that what's you want of course to occur.
(27:45)
Then you can reevaluate investment strategy at the time. You have a little bit more of an understanding of curve positioning and credit positioning and know what you own. Then kind of looking a bit more to mutual funds for the most part, needless to say, in many instances, you're going to receive very good PM, portfolio management expertise and also credit quality expertise from that perspective as well. And then ETFs, right? ETFs continue to grow market share. It's almost like they feel as if they're a little bit of the next generation of investing where clients can receive significant diversification with lesser amounts to actually invest. But keep in mind, in most instances, you're not going to have a stated maturity date when the monies come back. But for the most part, ETFs allow investors to receive diversified exposure to the market, whether that's for income, whether that's to hedge, we would probably just focus or kind of advocate that those who focus on ETFs have a little bit more of a longer timeframe, longer course set perspective from an investment outlook for the most part because probably do need some flexibility there. But each different product and structure, of course, offers attributes that it depends on what the investor is actually trying to accomplish, which we think are beneficial. But for the most part, we'll see if this one week does continue, but I think the amount of redemptions that are actually coming back to investors over the next couple of months, for the most part, could be very constructive for the market once we get past July 4th and this pre-summer supply push.
Jessica Lerner (29:15):
Thanks. So the Fed just released its muni ownership data for the first quarter, and one of the things we saw was bank ownership of munis falling 7% year-over-year and 2.3% quarter-over-quarter. Matthew, can you talk about why this happened even though it might be expected?
Matthew Gastall (29:35):
Sure. So I think it comes back once again to where municipals are actually trading versus some of their taxable counterparts on a tax-adjusted basis. For the most part, we're seeing a bit less institutional presence for the most part. But when it comes down to and looking at those same data for the most part that you were looking at, Jessica, I think the big thing to stress is that this continues to be a household-dominated asset class. Munis, of course, are two-thirds controlled by U.S. households. That of course has occurred because of the value of the federal tax exemption and any state and local exemptions where of course they're applicable. We tend to, of course, see some international emphasis or influence in the muni asset class, but really generally not as much as in other asset classes, again, because of the value of the federal tax exemption.
(30:30)
So that being said, even when we're writing our strategy, we need to account for the reality that there's not as much of an international focus, that they are of course two-thirds controlled by households. And I think a very large portion or one of the significant byproducts from that relationship is that we do tend to see a little bit of a laggard response from munis versus Treasuries that of course are traded on a more, of course, wider arena for the most part throughout of course a wider timeframe and on a, of course, more globalized exchanges. So again, that laggard response, we tend to generally see municipals outperform selloffs and underperform rallies. And that is of course, when factoring in those dynamics, that's a part of our strategy when we're looking at strategy here. Big thing, though, when it comes down to the value of municipals to households, we generally talk about, well, number one, obviously the creditworthiness of municipals. Moody's data going back from 1970, of course up until 2022, A-rated default rate on a municipal bond, roughly one-tenth of 1% or less at certain periods.
(31:39)
So very low default rates for the most part. And I think that as we might talk about in a little bit as far as muni credit is concerned, many municipalities tend to have a symbiotic relationship with each other, which also helps to bolster their creditworthiness. Number two, tax efficiencies when it comes to U.S. federal households, again, factoring in federal, state, local exemptions, the 3.8% Medicare surtax limitation of the SALT deduction. And then number three, I think the other kind of lesser-known fact about municipals, very large portion of the market is structured to pay a large above-market coupon income stream, which tends to increase current yield to certain clients. Also can that those large coupon income streams can help the asset class to actually be more defensive, particularly if they're callable and priced at premiums against rising interest rates than other types of securities that have lower coupons.
(32:34)
So that's also important. The big thing we would stress is when you're kind of working with some of those large above-market coupon income streams, of course, you want to be careful not to spend the income in excess of the portfolio's yield because you'll kind of gradually work your way or kind, of course, spend into principle. But again, when you're looking at wealth preservation, tax efficiencies, payments of generally above-market coupon income streams, that's why municipals tend to be so important to households, and we don't really see that or foresee that changing too much in the future.
Jessica Lerner (33:07):
So, both Daryl and Matthew, is there anything else I should be asking you about that our listeners should be thinking about?
Daryl Helsing (33:14):
Well, Jessica, my final comments would be that investors can now capture attractive yields on relatively safer investments. For example, the six-month T-bills yielding nearly 5.5%, and it's been over 20 years since it's been this high. With the inverted yield curve allocations on the front end of the curve are certainly appealing. It may be appropriate for income-focused investors to also consider the benefits of locking in yield in the belly of the curve. And lastly, we are in a very dynamic macro climate, and so we think it's very important for investors to prepare their bond portfolios for a range of potential outcomes.
Jessica Lerner (33:58):
Matthew, any last thoughts?
Matthew Gastall (34:01):
Sure. I would actually work right off of Daryl's comments that as obvious as it may sound, one of the nice things about investing is that you very rarely have to choose either one path or the other and you can't go back, right? And I think that dovetails in very much with our current strategy now that well, number one, short-end yields, as Daryl mentioned in taxables and also taxable munies, and even in tax-exempt yields right now, we're still for the most part have a curve inversion on the front end of the muni yield curve, and in many other taxable curves. Some of those short-end yields are very attractive. So great alternatives to consider as far as investing short. But at the same time though, kind of working our way, if rates do come down in the belly and the long end of the yield curve, we don't know if that's actually going to occur or not.
(34:51)
But again, specifically over the course of the next couple of weeks, while there are more investment options and supply, which we think may be healthy before it potentially declines, maybe look to do some locking in of some of the yield, even though some of those yields right now with the inversion might actually be lower than some of the shorter yields. The play there is, of course, do for the most part, kind of lock in a little bit for a longer timeframe. Now again, does that mean moving everything up on the yield curve right now with still uncertain inflation? And of course, the possibility is of various different economic climates flowing, growth, maybe even stagflation? No, of course, we're not looking from the perspective of being too, too aggressive. But the nice thing, again about investing is that you can keep some money short, keep some monies in cash, also look to kind of lock in a little bit. We like using those kicker structures to kind of protect against rising interest rates. And of course, you can kind of hedge your bets for the most part by doing a combination of a few different strategies, which of course we discuss in our monthly publications.
Jessica Lerner (35:52):
Thank you both for being here today and talking with me.
Matthew Gastall (35:55):
Thanks, Jessica.
Daryl Helsing (35:57)
Thanks, Jessica.
Jessica Lerner (35:58):
Thank you for listening to the Bond Buyer podcast. I produced this episode with audio production by Kellie Malone. Special thanks this week to Matthew Gastall and Daryl Helsing of Morgan Stanley. Rate us, review us and subscribe to our content at www.bondbuyer.com/subscribe. From the Bond Buyer, I'm Jessica Lerner, and thanks for listening.