Institutional Investors Shift Focus to Municipal Bonds for Tax-Efficient Yield in 2025
Institutional investors are recalibrating their fixed-income strategies to capitalize on the evolving municipal bond market in 2025. With the Federal Reserve's easing cycle underway, extending duration targets to the 10-30 year maturity range offers dual benefits: locking in elevated yields and positioning for price appreciation. The modified barbell strategy—pairing short-term liquidity with long-end yield capture—emerges as a tactical response to curve dynamics.
Credit selection grows increasingly nuanced. Lower-rated investment-grade bonds (A/BBB) now present compelling spread opportunities as pandemic-era stimulus fades. Essential-service revenue bonds and select transportation credits are gaining traction as high-yield candidates. Meanwhile, the revised $40,000 SALT deduction cap creates fresh incentives for state-specific allocations among high-net-worth portfolios.
