(Bloomberg) — US state and local debt with long maturities offer “compelling” value in this less crowded corner of the market, according to the municipal investment arm of MacKay Shields.
So-called separately managed accounts, major players in the muni space that offer customized portfolios to retail investors, tend to prefer securities that come due in a decade or less. That leaves long-dated bonds looking attractive, especially bonds maturing in 12 to 22 years, according to a report by MacKay Municipal Managers.
“The structural constraints of these investment vehicles ultimately cap their ability to extend further, leaving the most compelling relative value firmly in the hands of flexible, unconstrained managers operating in less crowded portions of the curve,” the group said in a report released Monday.
That value can be seen in relation to the yield on muni bonds versus Treasuries.
The 10-year AAA muni benchmark offered about 62% of the yield on similar Treasuries as of Jan. 8. That measure of relative value signals that state and local debt has reached the most expensive level since May 2024.
Longer-dated munis are cheaper, with 30-year munis offering about 85% of similar Treasuries and 20-year munis offering 81%.
“In 2026, where bonds sit on the curve – and whether investors have the flexibility to reach less trafficked segments – will matter as much as the overall direction of interest rates,” John Loffredo, co-head of MacKay Municipal Managers, said in a statement.
(Updates to add statement from co-head of MacKay Municipal Managers in the last paragraph)
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