Catch Yields While You Can

The past twelve months have been full of periods of volatility that have sometimes seemed hard to overcome, as negative sentiment often dominated the headlines. Looking back on the year however, bonds did fulfill initial expectations with returns solidly in positive territory across the curve.

We believe there will continue to be opportunities in the year ahead — but time is running out. Growth is slowing, inflation is normalizing, and we believe that the Fed will begin to cut rates. We think yields will move lower in 2024 and encourage investors to take advantage of the current elevated yield environment to lock in longer-term yields while they can.

“

2023 was a wild ride for investors in the muni market, given the volatility in the treasury market. As we look ahead to 2024, investors that can selectively add credit and be nimble around their duration will be in a strong position to navigate the likely continued volatility in the year ahead.”

Scott Diamond

Co-Head of Municipal Fixed Income

“

Investors have had the opportunity to lock in yields that we have not seen in a very long time. Yields will fall in 2024 and quality bonds will perform. Investors will continue to have opportunity — Carpe Diem! Embrace duration. Be wary of reinvestment risk. Know what you own. ”

Sylvia Yeh

Co-Head of Municipal Fixed Income

“

Investment grade credit had a strong 2023 and we expect that to continue in 2024 supported by a steady economic environment. We expect revenue trends to normalize, after a few years of rapid expansion, and some municipalities will require expenditure discipline to adjust. For high yield credit in 2024 we do not see any sector wide or systemic risk, consistent with recent trends.”

David Alter

Head of Credit Research, Municipal Fixed Income

Municipal Fixed Income 2024 Outlook

Growth is slowing, inflation is normalizing, and we believe the Fed will begin rate cuts. Investors may consider locking in longer-term yields while they can.

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Risk considerations and disclosures

Disclosures

Risk Considerations

Income from municipal securities is generally free from federal taxes and state taxes for residents of the issuing state. While the interest income is tax-free, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT).

Investments in fixed income securities are subject to the risks associated with debt securities generally, including credit, liquidity, interest rate, prepayment and extension risk. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. The value of securities with variable and floating interest rates are generally less sensitive to interest rate changes than securities with fixed interest rates. Variable and floating rate securities may decline in value if interest rates do not move as expected. Conversely, variable and floating rate securities will not generally rise in value if market interest rates decline. Credit risk is the risk that an issuer will default on payments of interest and principal. Credit risk is higher when investing in high yield bonds, also known as junk bonds. Prepayment risk is the risk that the issuer of a security may pay off principal more quickly than originally anticipated. Extension risk is the risk that the issuer of a security may pay off principal more slowly than originally anticipated. All fixed income investments may be worth less than their original cost upon redemption or maturity.

General Disclosures

The views expressed herein are as of December 15, 2023 and subject to change in the future. Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein.

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Date of first use: January 02, 2024