Why are we prone to irrational behavior as investors? Why do we too often sell when we should buy and buy when we should sell? Market history is replete with examples of this behavioral dynamic.

We believe the best way to add value is through relative positioning in sector allocations, individual security selection and along the yield curve, holding duration neutral overall. That approach, however, does not prevent us from having views on interest rates and we think bonds offer good value at current rate levels.

Different investors will choose different paths in response to the challenge of low rates and high credit uncertainty. Some may want to fight the trend by taking on more risk to achieve a target level of income or return.

If there is one asset class where advisors have taken a do-it-yourself approach, it is municipal bonds. Advisors and their clients often buy individual muni bonds and hold them until maturity. But the muni market is very broad, diverse and complex – and those are the ingredients that favor professional management.

Market sectors perceived as low-risk, such as the municipal bond market, can offer valuable lessons and insights for those who study the market. That includes interest rate risk, including optionality and cash flow uncertainty. Investors must also consider liquidity, regulatory, legal and political risks.

Value in Short-Term Bonds: The sharp rise in short-term rates in 2017 has created attractive valuations on the front end of the investment-grade curve. If the curve could speak, almost certainly the shorter maturities would now be shouting, Look at me---look at me! Not since fall 2008 have investors been able to earn 2.0% or more on high-quality, short-term bonds such as 2-year Treasury notes.

Baird’s Duane McAllister outlines the impact of hurricanes on the muni markets in Florida and Texas, noting the benefit of the strong fiscal position of both states.