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Credit Insights

Opportunities Opening Up in Muni Market

The turmoil in the municipal bond market is forcing muni bond portfolio managers to sell what they can, not what they want to.

Credit spreads tightened over the course of last week, but widened Friday as the equity markets sold off.

With credit spreads near their lowest levels since before the crisis, investors are becoming increasingly frustrated with their investment opportunities. Portfolio managers are reaching for yield by lengthening the duration of their portfolio, swapping into longer-dated bonds, or extending further down the credit spectrum by purchasing lower-credit-quality bonds. For example, funds that concentrated in buying short-dated A rated bonds have been trying to swap into medium-duration bonds.