"Municipal bonds will be one of the best performing fixed-income asset classes this year."
After high-profile predications of disaster in the space, it's a statement not heard for some time, but one Bob DiMella (left) confidently makes.
The senior managing director and portfolio manager at MacKay Municipal Managers, a part of New York Life, says the $3.7 trillion municipal-bond market was never as bad as people said.
"The people making those predictions never really had a grasp of municipal financials," DiMella explains. "They didn't understand the steps state and local governments could take to fix their situations. We're telling clients we're not there yet and some fear is still being priced in, but it's no longer a panic."
For this reason, he sees 2013 as a comeback year and is calling it "The Year of Income."
"There will be more upgrades than downgrades this year, which is significant," he adds.
MacKay and Dimella identified five key themes for muni bonds in 2013, including:
1. Credit cycle has troughed—fundamentals begin uptrend
"After recent years of more ratings agency downgrades versus upgrades, we expect the trend in the municipal market to stabilize."
