In the current financial environment, the often misunderstood municipal bond market is not considered to be a “core” asset class by many investors, nor is it labeled as such by institutions offering financial products to investors. It can be argued that investment-grade municipal bonds have some qualifications to be “core.”
In this paper, we have examined some of the reasons U.S. investment-grade municipal bonds should be considered a “core” asset class.
Large and Diverse Market
According to SIFMA, the municipal bond market had over USD 3.7 trillion outstanding as of June 2015. There are approximately 1.5 million different municipal bonds outstanding, from tens of thousands of different issuers.
The average rating (from Moody’s, Standard & Poor’s Ratings Services, or Fitch) of investment-grade bonds in the S&P National AMT-Free Municipal Bond Index is higher than the average rating of bonds in the S&P 500® Bond Index.