After Muni-Bond ‘Bloodbath,’ Expectations for 2023 Are Muted

Buy-and-hold investing gains appeal as interest rates rise

By Heather Gillers, The Wall Street Journal

Excerpt follows below.

State and local government bonds are on track to post their worst yearly performance since 1981, a deep slump for an investment prized for safety and stability.

Investors fled munis in 2022 even as public coffers swelled and money managers boasted of historic bargains. Municipal-bond mutual funds lost money for 17 consecutive weeks through mid-December, according to Refinitiv Lipper, bringing 2022’s total outflows to more than $90 billion, a 20-year record. 

As fund managers unloaded bonds, prices fell further, leading more investors to cash out. “It’s kind of a herd mentality,” said Cumberland Advisors director of fixed income John Mousseau.

A Massachusetts general-obligation bond that matures in 2048 traded in December at 80 cents on the dollar, down from its February issuance price of 101 cents. Prices fall as yields rise because the prospect of forthcoming higher-yielding debt makes outstanding bonds with lower coupons less valuable.

Read the full story at The Wall Street Journal website (paywall): https://www.wsj.com/articles/after-muni-bond-bloodbath-expectations-for-2023-are-muted-11672093648

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