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Municipal Fixed Income Outlook 2022

The Journey Home

Investors took on increasing levels of risk throughout 2021 as they searched far and wide to maximize yield and return. At the same time, we continued to observe investors holding record levels of cash. With interest rates projected to head higher and credit spreads at the lower end of historical averages, we believe it is time for investors to pare credit risk back to neutral and re-visit their core municipal allocation by opportunistically extending duration and strategically deploying cash.

Portfolio Perspectives

Scott Diamond

Co-Head of Municipal Fixed Income

Scott Diamond


“For 2022, the market’s bias that rates will trend higher may present an opportunity for investors to deploy cash at more attractive tax exempt yields.  While municipal credit did very well last year, the fundamentals remain very strong and supportive of valuations – though selectivity will be important.”

Sylvia Yeh

Co-Head of Municipal Fixed Income, Goldman Sachs Asset Management

Sylvia Yeh


"Supply and demand factors will continue to evolve and play a large role in municipal performance throughout 2022. On both fronts, we expect the market to become more diverse – resulting in a broader and deeper buyer base, with an intensifying focus on ESG related investment themes."

David Alter

Head of Municipal Research, Goldman Sachs Asset Management

David Alter


 “Municipal credit quality strengthened in 2021 on above average revenue growth, a supportive federal government and positive equity results. We believe this strength will carry into 2022.  However, how the spending side of the upcoming budget season shapes up will be quite telling.  For some municipalities we may see spending continue to accelerate just as economic growth moderates.”

Positioning for Higher Rates (Again)

If rates rise across the entire yield curve in 2022, investors may want to opportunistically extend duration to take advantage of the higher yields longer-dated bonds may offer.

Treasury and AAA Muni 10-Year Yields


Source: Goldman Sachs Asset Management, Bloomberg, LIS Treasury Indices. As of December 31, 2021. Past performance does not guarantee future results, which may vary..

Related Insights


The views expressed herein are as of December 31, 2021 and subject to change in the future. Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security, they should not be construed as investment advice.

Municipal Securities are subject to credit/default risk, interest rate risk and certain additional risks. High-yield, lower-rated securities involve greater price volatility and present greater credit risks than higher-rated fixed income securities. Investments in fixed-income securities are subject to credit and interest rate risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. Credit risk is the risk that an issuer will default on payments of interest and principal. All fixed income investments may be worth less than their original cost upon redemption or maturity. Income from municipal securities is generally free from federal taxes and state taxes for residents of the issuing state. While the interest income is tax-free, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT).

All investments involve risk including possible loss of principal. Individual asset classes involve unique risks. Bonds and fixed income investing are subject to interest rate risk. When interest rates rise, bond prices fall. Equity securities are more volatile than bonds and greater risks. Small cap company stocks involve greater risks than those customarily associated with larger companies. International securities entail special risks such as currency, political, economic, and market risks. These risks are heightened in emerging markets securities which may be less liquid and more volatile.
These risks should be fully evaluated before making an investment decision.

Glossary of terms

Volatility is the manner in which the price of an investment moves up and down. If prices fluctuate dramatically over a short period of time, a market is said to be highly volatile.

Price/earnings (PE) ratio is a gauge of how expensive a stock is. The higher the P/E ratio, the more the market is willing to pay for each pound of annual earnings. A bond with a credit rating of BBB or above from an independent rating service such as Standard and Poor’s.

Drawdown is the peak-to-trough decline during a specific recorded period of an investment security.

Tail risk arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution.

Bull market is a term used to describe a market in which prices are rising or expected to rise. G10, or Group of Ten, is a group of eleven industrial countries which co-operate on economic matters.

Over-levered is a term used to describe a company which has taken on too much debt.


Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources. Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.

Goldman Sachs does not provide legal, tax or accounting advice, unless explicitly agreed between you and Goldman Sachs (generally through certain services offered only to clients of Private Wealth Management). Any statement contained in this presentation concerning U.S. tax matters is not intended or written to be used and cannot be used for the purpose of avoiding penalties imposed on the relevant taxpayer. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you may disclose to any person the US federal and state income tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind. Investors should be aware that a determination of the tax consequences to them should take into account their specific circumstances and that the tax law is subject to change in the future or retroactively and investors are strongly urged to consult with their own tax advisor regarding any potential strategy, investment or transaction.

Environmental, Social, and Governance (“ESG”) strategies may take risks or eliminate exposures found in other strategies or broad market benchmarks that may cause performance to diverge from the performance of these other strategies or market benchmarks. ESG strategies will be subject to the risks associated with their underlying investments’ asset classes. Further, the demand within certain markets or sectors that an ESG strategy targets may not develop as forecasted or may develop more slowly than anticipated.

The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.


This material is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. This material is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives.

Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.

This material contains information that discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It also pertains to past performance or is the basis for previously-made discretionary investment decisions. This information should not be construed as a current recommendation, research or investment advice. It should not be assumed that any investment decisions shown will prove to be profitable, or that any investment decisions made in the future will be profitable or will equal the performance of investments discussed herein. Any mention of an investment decision is intended only to illustrate our investment approach and/or strategy, and is not indicative of the performance of our strategy as a whole. Any such illustration is not necessarily representative of other investment decisions.

This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research. It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from the views and opinions expressed by Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information should not be relied upon in making an investment decision. Goldman Sachs Asset Management has no obligation to provide any updates or changes.

Portfolio holdings and/or allocations shown above are as of the date indicated and may not be representative of future investments. The holdings and/or allocations shown may not represent all of the portfolio's investments. Future investments may or may not be profitable.

Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.

Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.

References to indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that the portfolio will achieve similar results. The index composition may not reflect the manner in which a portfolio is constructed. While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from those of the benchmark.

Index Benchmarks

Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices.

The indices referenced herein have been selected because they are well known, easily recognized by investors, and reflect those indices that the Investment Manager believes, in part based on industry practice, provide a suitable benchmark against which to evaluate the investment or broader market described herein.

Date of first use: January 13, 2022.   264612-OTU-1535406

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