Live on Bloomberg TV

00:00Sean Carney is joining us right now, head of municipal strategy over at Black and Sean, January, a pretty good month already for muni investors, pretty decent returns. A lot of people curious to see whether this carries through deeper into the year. Yeah, a very good month remain almost 3 percent on the broad ISE index in about four and a half percent on the high yield index. And it's not just the January story. As you know, this started back in late October, early November of 2022. So meetings are up 8 percent in the ISE space and a little north of 10 percent in the high yield space since November. So a really good trend here in performance. So not just a January sort of story. And that's what I've heard a lot when it comes to the equity markets that this is just the January effect. But let's talk a little bit more about those different tiers. Fourth investment grade and the high yield muni space when you look out over the course of 2023. Which do you think is going to be the alpha former? I think high yield has the ability to be the outperform or for a couple of reasons. From a structure standpoint, a greater portion of high yield is still priced at a discount. So that favors a little bit more price return, total return. But I Gene Unis will do well. You know, we're calling for a mid single digit return. Now, I just mentioned we've had a 3 percent already in January. We do think there's going to be a little bit of pullback, a little bit of volatility while the Fed is still is still engaged in markets. But, you know, there is a good potential from union returns here in 2023. But see your question. Haidi Lun certainly has the opportunity to outperform and given some of the dynamics in that market in the longer duration. When we talk about the broader dynamics at the, I guess, a draw of some of the returns that we saw in January and even at towards the end of last year, Sean, there are a lot of people who are looking to inflation coming down. And more importantly, where does it sort of end? Does it get back down to the 2 percent level that the Fed shooting for? Are we going to have to live with something that's a little bit higher, maybe a 4 percent, maybe even a 5 percent here? How does that feed into the outlook for munis? How much are you concerned here about the potential stickiness of inflation and the idea that it may not actually get down to 2 percent anytime soon? Yeah, very good question. There's something that we think about often kind of on the fundamental side of our asset class. The move from 9 percent down to call it 5 4 percent will probably be a rather quick one. But then it's that 4 percent down to 2 percent that we believe is just going to take a little bit more time. Yes, supply chains are starting to straighten themselves out, but there are still lags the labor side of the market. There's still some, you know, some supply and demand issues there. So no inflation to remain a bit elevated for a period of time. We think that the Fed, obviously, you know, much like the market does raise rates by 25 basis points tomorrow. But, you know, the focus in a meeting like this, we have been a non summary of economic projections. Meeting is going to be certainly on the press conference at two 30. And what we get there well outside of just the Fed conference and we got tomorrow as we wait for inflation to hopefully return back something we're closer to 2 percent. Which areas of the muni market look particularly attractive right now? Are there any sectors that screen is undervalued at this point? Yeah, undervalues a little difficult, especially given the run that we've recently had. But there are some that we do favor over others. We have an up and quality bias right now putting a little bit more towards liquidity in the market. So if we look at the state and local sectors, those that are exposed to energy and commodities are something we favor also. Again, at the state and local level, those that are experiencing positive demographic changes, very important on the revenue side. You know, those essential service providers that have monopolistic pricing power, such as your public power and water and sewer, if we go over to the high yield sectors and we look at things like tobacco, which will ultimately benefit from higher inflation airlines as travel comes back online, both leisure and business. And again, many more bonds in that sector are still at a discount, which offers an opportunity for those bonds to kind of move towards the coupon and return a bit more on the total return side of the equation, not just clipping the coupon in the income side.

No schedule data available.

High-Yield Munis to Outperform, BlackRock's Carney Says

Sean Carney, BlackRock's head of municipal strategy, discusses the outlook for municipal bonds with Romaine Bostick and Katie Greifeld on "Bloomberg Markets: The Close." (Source: Bloomberg)