1. Why are my Muni Bonds down?
Muni bond prices declined primarily due to rising interest rates. With the Federal Reserve trying to manage inflation, bond yields will change accordingly.
Higher interest rates make yields on existing bonds with lower coupons less attractive, causing their prices to decrease. In turn, lowering rates have the opposite effect on value.
However, recent Federal Reserve rate cuts have caused prices to go up and yields to go down, thus reversing the trend of a rising rate cycle on fixed-income securities.
It’s important to remember that unless you sell before maturity, your principal is safe, and like other asset classes, the value will vary depending on economic conditions.
2. Is this the right time to buy Muni bonds?
Yes, it is an extremely favorable time to consider buying municipal bonds since we are currently in an interest-rate-reducing cycle with the Federal Reserve. Locking in current returns before further rate cuts will result in better yields.
However, before making any decisions, assessing your financial goals, risk tolerance, and investment strategy is essential. We recommend consulting with a financial advisor to determine if buying Muni bonds aligns with your investment objectives.
3. The Critical Question: Will the Fed continue to lower rates?
The Fed is expected to continue lowering rates as inflationary pressures ease. They plan incremental reductions in an effort to reach their 2% inflation target rate.
Economists have predicted another half-point reduction before year-end. With an economy firing on all cylinders, predicting timing is difficult, especially when spending is still strong.
4. How low will rates go?
As mentioned, the Fed’s target inflation rate is 2%, and its mandate is to adjust rates accordingly to achieve that goal. While we can’t be certain how low rates will go, we recognize that depending on how the economy responds along the way, it will be a gradual process.
At The DRL Group, we specialize in helping high-net-worth investors maximize their tax-free returns by proactively maintaining their custom bond portfolios through all market conditions.
If you are ready to schedule a call with one of our specialists, please reach out to us at 281-398-8600.
