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Video: Munis may provide safety and attractive after-tax yield in 2019

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The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Nisha Patel, CFA, Portfolio Manager, Eaton Vance Management

      New York - We believe the biggest opportunity for municipal-bond investors heading in 2019 is to earn attractive after-tax yield, especially in the front end of the curve and for high-net-worth individuals. Outside of a major shift in rates, we think current yields offer a very attractive entry point.

      Muni investors don't have to go out that far in the yield curve to achieve attractive yield. We think this is an opportunity for investors who are looking for exposure to muni bonds, but who don't want to take on a lot of duration risk.

      (Tap or click the image below to view the video.)

      Blog Image Patel 19 Outlook Jan 16

      For more income-focused investors, we like going out to the intermediate part of the curve, or about 15 years. Here, an investor can capture most of the income that's available out further on the yield curve. We also think this intermediate part of the curve may do well if short-term rates continue to go up, but long-term growth expectations start to slow down.

      So, we don't see a big move higher in long-term rates, in part because inflation remains muted and the Federal Reserve may pause on rates at some point in 2019. The rise in yields we already saw in 2018 may slow the housing market, and the positive impact of tax reform may already have run its course.

      Inflows to munis were strong in 2018 as investors took advantage of higher yields. Additionally, we saw clients in 2018 add more exposure to muni bonds as a way to diversify and potentially protect against weakness in other areas of the bond markets, as well as turbulence in equities. We could continue to see more volatility in 2019 on lingering concerns that economic growth has peaked.

      On the supply side, we expect issuance to tick up to fund projects, but we expect a continued drag from the tax change that eliminates advance refunding of outstanding bonds. In the end, though, we expect to see more inflows coming into the market than the amount of supply we expect to see.