Today's municipal bond market

The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

After a year in which municipal bonds posted respectable returns (Figure 1), many clients have been seeking forward-looking guidance on the market as a whole and (increasingly) on particular sectors of it. Here are my latest thoughts as of this writing on the outlook for the rest of 2022.

Figure 1

The 30,000-foot view

In my view, municipal market fundamentals have never been stronger, buoyed by conservative financial policies and federal fiscal stimulus. Taxable-equivalent yields are much higher than those for equal-rated and similar-duration corporate bonds, but with a much lower historical default experience and typically lower interest-rate sensitivity for municipals. In addition, I anticipate a supportive technical backdrop for the market over the balance of 2022, especially on the tax-exempt muni side — where the prospect of higher individual tax rates should drive strong retail demand, with net supply likely to stay low given the current calendar of maturities.

A sector-by-sector breakdown

Broadly speaking, given the continued strength of the economic recovery and the extent of direct federal support for a wide swath of municipal credits, underlying fundamentals appear to be robust across most segments of the market — the one exception (as discussed below) being the senior living space.

Hospitals: Fundamentals will likely remain resilient in 2022, albeit not back to pre-pandemic levels. Volume has largely recovered across the acute care space, driving healthy revenue growth, although inflationary pressures on labor and supply costs will continue to pose a challenge. Providers will need to find ways to cut or redistribute costs. We generally favor providers with size and scale, as well as proven smart growth strategies.

Higher education: Despite the return of on-campus instruction, undergraduate enrollment continued to decline last fall. However, much of the decline was concentrated in for-profit and two-year colleges, with private nonprofit enrollment having essentially flattened. Credit fundamentals generally remain solid amid market performance supporting endowments and federal aid bolstering state and public university budgets. We currently favor opportunities in certain major niche schools and those in strong demographic areas.

Airports: The COVID slowdown has been definite proof of concept for the resiliency of airport credits. Despite dramatic decreases in enplanements, very few airports have seen across-the-board credit downgrades from the rating agencies, while S&P has begun to reverse many of its previous downgrades. Meanwhile, enplanement levels nationally have reached about 80% of prior peaks and, in the case of some domestic-focused airports, are now above said peaks.

Toll roads: As of the third quarter of 2021, nationwide toll road traffic was back to around 90%+ of pre-COVID levels, with some states having surpassed those levels. This segment will likely receive a boost from higher inflation, as roughly half of US toll roads have an automatic inflation adjustment built into their toll-rate policy. Longer term, growth rates will bear watching amid new hybrid work schedules.

State and local: State and local credit quality is expected to remain stable over the next 12 months, supported by still-adequate income and sales tax performance, property value growth, and solid reserve and liquidity positions. However, as federal stimulus programs wind down and consumption begins to transition more toward services, we believe the recent trend of healthy revenue growth is likely to moderate.

Student loans: Many of the municipal bonds in the student loan space are private loans (usually taken as a supplement to federal student loans), either “in-school” loans or refinancing of existing ones. Many of these have performed well — and may continue to — as a result of federal loan forbearance in recent years, which has given large numbers of borrowers extra cash with which to pay down their private loans.

Senior living: COVID continues to be a big determinant of occupancy levels and financial results in this space, but the general attitude and modus operandi seem to have shifted from “catastrophic” to “manageable.” However, challenges persist amid seasonal COVID factors and lingering uncertainty around the pandemic. Overall, its continued impact remains very credit-dependent, driven by occupancy rates, supply costs, and other facility-specific factors. We favor credits with predictable operating cash flows, known capex plans, and ample liquidity.

Expert

Tim Haney

, CFA

Fixed Income Portfolio Manager

Related insights

Showing of Insights Posts

Article

5 min

JPY intervention: what makes it so important this time?

Multiple authors

event

5 min

Article

2027-02-25

Video

4 min

Weekly Market Update

Paul Skinner

event

4 min

Video

2027-01-31

Article

6 min

Top 5 fixed income ideas for insurers in 2026: Give ground on risk, but just a little

Amar Reganti

Adam Norman

event

6 min

Article

2027-01-31

Article

13 min

2026 Insurance Outlook: Cautious optimism and a second bite at the apple

Amar Reganti

Sophia Townsend

event

13 min

Article

2027-01-31

Article

4 min

Another banner year for emerging markets local debt in 2026?

Multiple authors

event

4 min

Article

2027-02-28

Article

8 min

Finding durable value amid shifting currents

Amar Reganti

Marco Giordano

event

8 min

Article

2026-11-26

Whitepaper

22 min

The evolution of derisking: Assessing new and time-tested liability-hedging ideas

Amy Trainor, FSA

Jacqueline Yang, CFA

event

22 min

Whitepaper

2026-06-30

7 LOAD {count} MORE

URL References

Related Insights

Get our latest market insights straight to your inbox.

Wellington Alternative Investments

Contact us

OUR FUNDS

Fund Documents

Explore our insights

Asset class

Key Topics

Formats

2026 Investment Outlook

Explore our capabilities

Asset class

Clients we serve

Investment Solutions

About us

Contact Us

Media & press

Careers