Muni Meltdown

Matthew Allgood |



Markets had a rocky start to 2022 amid geopolitical turmoil and persistently elevated inflation. One impacted asset class was investment-grade credit, known to be more sensitive to rising interest rates due to IG bonds’ low yields and high duration. With a hawkish Federal Reserve pivot toward an aggressive rate-hike schedule, investors pulled $12.4 billion from municipal funds in the first two months of the year, according to Lipper data.


Given that municipal bonds are an asset class favored for their stability, this was a dramatic pullback – outpacing taxable corporate credit in both the investment-grade and high-yield space. As a result, the municipal bond market ended the quarter with a 6.2% loss, its worst performance in four decades.


Muni Meltdown

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Source: Bloomberg, Redwood. Investor cannot invest directly in index shown. Data as of 4/8/2022.


Investors may be taking profits off the table after “munis” outpaced other fixed-income assets in 2021. Or perhaps their core buyer base is retail investors who are more reactive to planned rate hikes. Currently, high-yield muni bonds are still trending lower amidst fears of rising rates. In any environment, we adhere to our RiskFirst® approach, which seeks to sidestep drawdowns to mitigate risk of large loss.


  • Rooted in quantitative analysis, our portfolio compositions are fundamentally data dependent.
  • Our portfolios incorporate tactical mandates seeking to manage drawdown risk.
  • We believe the key to consistent, long-term investment success is the preservation of capital.



Allgood Financial






Disclosure: This piece is for informational purposes only and contain opinions that should not be construed as facts. Information provided herein from third parties is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Charts and graphs are for illustrative purposes only. Discussion of any specific strategy is not intended as a guarantee of profit or loss. Past performance is not a guarantee of future results. Objectives mentioned are not guaranteed to be achieved. Investors cannot invest directly in any of the indices mentioned above. RiskFirst® is a registered trademark of Redwood Investment Management, LLC.



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