Beyond the headlines about credit troubles in Puerto Rico and Chicago, there is a lot to like about the municipal bond market, said David Dowden, portfolio manager for the MainStay Tax Free Bond fund. ‘The market certainly has not behaved as we anticipated in the beginning of the year,’ said Dowden. ‘On the other hand, when we look at the overall market and where it is heading from here. We are pretty optimistic about relative performance.’ Downden’s MainStay Tax Free Bond fund, which sports a 3.7% yield, is flat year-to-date and up 4.4% over the past 12 months, according to fund-tracker Morningstar. The fund has outperformed 87% of its peers, according to Morningstar, primarily because it has avoided a number of landmines in the minimarket like New Jersey paper. ‘If you look at New Jersey it is the worst performing state in the market today on an overall credit basis and that is a name that we have migrated away from in the last year and a half,’ said Dowden. ‘Illinois is a credit that we avoided a long time ago. Our argument has been that while general credit fundamentals are improving, overall there are winners and losers and it is our job to discern among those.’ Issuance is another driver of muni bond performance and that has been strong this year as well. Dowden said the market is on pace to go over $400 billion at this point, largely driven by refundings.
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