Opportunity to lock it in

Question: How is the timing of the first federal funds rate cut impacting muni investors?

Ann Ferentino: We started the year off with the market pricing in and expectation for six rate cuts, totaling 150 basis points. But because of persistent inflation and this strong labor market, that's gotten repriced. That's gotten repriced through higher yields, and the market now is only pricing in about 40 basis points in cuts, through the end of the year. So it's gotten harder and harder to convince investors to maybe move out and extend duration, and lock in these higher yields. If you look at the bond indexes, year to date returns, you're going to see a lot of red. They're mostly negative. Investors, understandably, could be reluctant to extend duration, to lock in these higher yields. But you have to remember that with bonds, price down equals yields up, and this has truly created yet another opportunity to lock in higher yields. For investors that are hesitant to lock in these higher yields, remember that the income is the primary driver of total return. So if you're locking in an income of over 6.5%, you may still be in for a bumpy road, depending on what interest rates do and when the Fed does eventually cut. But you can also be certain that you are going to be able to stay at your destination for longer, that destination being, earning this high tax-exempt income. So where rates may be higher for longer, and that means volatile for longer, they're not going to be higher forever.