The missing core: why taxable municipals deserve strategic attention amid uncertainty
In today’s environment of policy recalibration, macroeconomic divergence, and rising fiscal uncertainty, institutional investors are re-evaluating traditional anchors of portfolio resilience.
For allocators focused on navigating an uncertain investment landscape, this asset class emerges as a forward-looking allocation decision grounded in quality, transparency, and resilience.
Taxable municipals are not just a yield enhancer; they are a scalable, resilient, and under-allocated strategic solution—purpose-built for navigating the new fixed income regime.
Strong credit quality grounded in budgetary discipline
Municipal issuers are legally required to balance budgets, creating structural fiscal prudence and therefore greater ratings stability over time.
78% of U.S. taxable municipal bonds outstanding are AA-rated or higher, while only about 9% of the global corporate investment grade bond market is AA rated.1
Attractive yield efficiency
More compelling yield than Treasuries, comparable to corporates but with significantly lower credit risk.
Proven downside mitigation
With a 10-year cumulative default rate of just 0.05%2, far below the 1.06% observed in global investment grade corporates, municipals have demonstrated consistent stability—even through stress cycles. While Treasuries have no credit default risk, their mark-to-market drawdown potential is significant.
Compelling returns
Over the past 10 years, Taxable municipals have generated positive excess returns to most similarly rated core investment grade fixed income asset classes.3
FIGURE 1: Credit rating distribution1
FIGURE 2: 10-year average excess return vs. US Gov3
1. Source: ICE Data, Bloomberg. Data as of December 31, 2025. Taxable Municipals - ICE BofA Broad US Taxable Municipal Securities Index (TXMB). Global Corporates – Bloomberg Global Aggregate Corporates Index.
2. Source: Moody's Investors Service, Average Cumulative Default Rates for Municipals and Global Corporates 10 years after issuance from 1970-2023.
3. Source: ICE Data. Data as of December 31, 2025. Agencies: ICE BofA U.S. Agency Index; RMBS: ICE BofA U.S. Mortgage Backed Securities Index; CMBS: ICE BofA U.S. Treasury Index; BofA U.S. Fixed Rate CMBS Index; ABS: ICE BofA U.S. Fixed Rate Asset Backed Securities Index; IG Corps: U.S. Corp Master Index; Taxable Munis: ICE BofA Broad US Taxable Municipal Securities Index.
It is not possible to invest directly in an index. Please see disclosures and index descriptions at the end of this document. Past performance is not indicative of future results.
IMPORTANT DISCLOSURES
Availability of products and services provided by MacKay Shields may be limited by applicable laws and regulations in certain jurisdictions and this document is provided only for persons to whom this document and the products and services of MacKay Shields may otherwise lawfully be issued or made available. None of the products and services provided by MacKay Shields are offered to any person in any jurisdiction where such offering would be contrary to local law or regulation. This document is provided for information purposes only. It does not constitute investment advice and should not be construed as an offer to buy securities. The contents of this document have not been reviewed by any regulatory authority in any jurisdiction. All investments contain risks and may lose value and these materials do not undertake to explain all of the risks associated with any investment strategy referred to herein. Clients and investors should not invest in any strategy referred to herein unless satisfied that they and/or their representatives have requested and received all information that would enable them to evaluate the merits and risks thereof. Any forward-looking statements speak only as of the date they are made, and MacKay Shields assumes no duty and does not undertake to update forward looking statements. Any opinions expressed are the views and opinions of certain investment professionals at MacKay Shields which are subject to change without notice. There may have been, and may in the future be, changes to the investment personnel responsible for the management of the strategy(ies) described herein, as well as changes to the investment process utilized by such investment personnel. Past performance is not indicative of future results.
Information included herein should not be considered predicative of future transactions or commitments made by MacKay Shields LLC nor as an indication of current or future profitability. There is no assurance investment objectives will be met.
Past performance is not indicative of future results.
NOTE TO UK AND EUROPEAN UNION AUDIENCE
This document is intended only for the use of professional investors as defined in the Alternative Investment Fund Manager’s Directive and/or the UK Financial Conduct Authority’s Conduct of Business Sourcebook. To the extent this document has been issued in the United Kingdom, it has been issued by NYL Investments UK LLP, 200 Aldersgate Street, London UK EC1A 4HD, which is authorised and regulated by the UK Financial Conduct Authority. To the extent this document has been issued in the EEA, it has been issued by NYL Investments Europe Limited, 77 Sir John Rogerson's Quay, Block C Dublin D02 VK60 Ireland. NYL Investments Europe Limited is authorized and regulated by the Central Bank of Ireland (i) to act as an alternative investment fund manager of alternative investment funds under the Alternative Investment Fund Managers Directive (Directive 2011/61/EU) and (ii) to provide the services of individual portfolio management, investment advice and the receipt and transmission of orders as defined in Regulation 7(4) of the AIFMD Regulations to persons who meet the definition of “professional client” as set out in the MiFID Regulations. It has passported its license in additional countries in the EEA.
This document only describes capabilities of certain affiliates of New York Life Investment Management and/or MacKay Shields LLC. No such affiliates will accept subscriptions in any funds not admitted to marketing in your country or provide services to potential customers in your country, including discretionary asset management services, except where it is licensed to do so or can rely on an applicable exemption.
MacKay Shields LLC is a wholly owned subsidiary of New York Life Investment Management Holdings LLC, which is wholly owned by New York Life Insurance Company. “New York Life Investment Management” is the brand name and service mark used to represent a group of affiliated investment advisors of New York Life Insurance Company, including New York Life Investment Management LLC, a registered investment advisor.
NOTE TO CANADIAN RECIPIENTS
The information in these materials is not an offer to sell securities or a solicitation of an offer to buy securities in any jurisdiction of Canada. In Canada, any offer or sale of securities or the provision of any advisory or investment fund manager services will be made only in accordance with applicable Canadian securities laws. More specifically, any offer or sale of securities will be made in accordance with applicable exemptions to dealer and investment fund manager registration requirements, as well as under an exemption from the requirement to file a prospectus, and any advice given on securities will be made in reliance on applicable exemptions to adviser registration requirements.
Information included herein should not be considered predicative of future transactions or commitments made by MacKay Shields LLC nor as an indication of current or future profitability. There is no assurance investment objectives will be met. Past performance is not indicative of future results.
NOTE TO JAPANESE RECIPIENTS
In Japan, this is issued by New York Life Investment Management Asia Limited (Financial Instruments Business Operator, Kanto Local Finance Bureau (FIBO) No. 2964, Member of Japan Investment Advisers Association and Type 2 Financial Instruments Firms Association) for institutional investors only. As costs and/or fees to be borne by investors vary depending on circumstances such as products, services, investment period and market conditions, the total amount nor the calculation methods cannot be disclosed in advance. All investments involve risks, including market fluctuation and investors may lose the principal amount invested. Investors should obtain and read the prospectus and/or information set forth in Article 37-3 of the Financial Instruments and Exchange Act carefully before making investment decisions.
MacKay Shields LLC is a wholly owned subsidiary of New York Life Investment Management Holdings LLC, which is wholly owned by New York Life Insurance Company. “New York Life Investment Management” is the brand name and service mark used to represent a group of affiliated investment advisors of New York Life Insurance Company, including New York Life Investment Management LLC, a registered investment advisor.
SOURCE INFORMATION
“Bloomberg®”, “Bloomberg Indices®”, Bloomberg Fixed Income Indices, Bloomberg Equity Indices and all other Bloomberg indices referenced herein are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by MacKay Shields LLC (“MacKay Shields”). Bloomberg is not affiliated with MacKay Shields, and Bloomberg does not approve, endorse, review, or recommend MacKay Shields or any products, funds or services described herein. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to MacKay Shields or any products, funds or services described herein.
Subscribe to get MacKay Shields insights delivered to your inbox.