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Municipal bond fund manager points to belly of curve for value
American Century Investments says the AAA muni benchmark has shifted to richer valuations versus Treasuries as front-end and long-end yields moved.
American Century Investments vice president and senior portfolio manager Joe Gotelli told VettaFi that the middle, or belly, of the municipal bond curve offers the most relative-value opportunity right now.
Gotelli said he has seen “richening” across the front and long ends of the muni curve from mid-June into July, and he linked that pattern to moves in the taxable market and the impact of Treasury yield volatility. He added that the AAA rated muni benchmark has drifted into a valuation area he described as rich versus Treasuries.
In his view, the front end where two-year munis sit has become the area to watch for mispricing, which the muni market has not fully reflected as Treasury yields rose. He also pointed to extra uncertainty tied to ongoing volatility related to the U.S.-Israel-Iran war.
Gotelli said his team is focusing on sectors and credit areas to seek additional spread, aiming to capture higher taxable-equivalent yields. He characterized the belly of the curve as more attractive than the front and the very longest maturities for curve positioning.