Expect high-yield municipals to spring ahead of investment grade muni bonds in the first half of 2016, but fall back in terms of relative performance later on this year, said Robert DiMella, co-head of MacKay Municipal Managers. DiMella said investor demand for yield and safety should continue to keep high-yield munis hot in the first half. However, in the latter part of the year, he said investment grade should outperform, as the flattening yield curve will cause refundings to accelerate. 'Not that high-yield is going to have a problem in the second half, but investment grade should outperform it so it’s a little bit of a tactical relative value shift for us,' said DiMella. And while railroads have been underperforming due to the collapse in energy commodity prices, DiMella said he expects the transportation sector to outperform because of a surge in spending and usage. He said the 2015 Federal Transportation Bill provides five years of funding for much-needed infrastructure programs while election-year positioning should motivate Congressional support for legislation that promotes job-heavy projects.
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