BlackRock Eyes Municipal Bonds; Smiles On The US Economy

Max Skjönsberg

13 April 2012

Tax-exempted municipal bonds in the US offer an attractive alternative to taxable fixed income, says BlackRock.

The asset management giant believes that the recent market sell-off has created opportunities on the municipal market front and recommends investors tap into state tax-backed and essential service bonds. The asset manager is not as upbeat on land-secured bonds, senior living bonds, bond insurer, student loans or local tax-backed issues.

At the same time, the firm thinks that investors’ appetite for risk is still increasing on the back of positive economic data in the US and the fact that fears over the European sovereign debt crisis appear to be on the wane.

BlackRock sees more value in the corporate bond market relative to government bonds, the yields of which yields are on the rise.

In equity markets, the asset manager continues to favor the US over other developed markets, and is also increasingly turning its attention to emerging markets. In terms of sectors, BlackRock singles out healthcare, energy and telecommunications services. The firm is gradually adopting a more favorable view toward financials, but still recommends an overall underweight position to that area of the market.

“The US is improving faster than other parts of the world,” iShares, the ETF arm of BlackRock, said in a separate note. “So far this year, economic data from the US has been better than expected, confirming that the world’s largest economy has experienced a strong first quarter. While real wage growth remains anemic, there has been a gradual healing of the US labor market. This is related to a slow but consistent growth in corporate earnings and over $1 trillion in cash on balance sheets.”