Portfolio Intelligence podcast | The role of municipal bonds in tax-efficient portfolios
With tax season under way, tax-efficient investing becomes especially relevant, and municipal bonds offer a compelling option. Adam A. Weigold, CFA, senior portfolio manager and head of municipal bonds at Manulife Investment Management, discusses opportunities and the role of munis in portfolios.
After a bumpy year with shifting supply dynamics and uneven performance, the muni market has regained its footing. In this episode, host John Bryson speaks with Adam on what’s driving improved performance and the opportunities for investors.
Adam breaks down how issuance trends, investor flows, and structural factors are shaping the market. He also shares why investors should consider munis and how active management can drive value in this environment. Here’s a quick look at the conversation:
1 What is driving the improved performance of municipal bonds?
Adam: We started the year with a bumpy backdrop. Supply had been heavy for a couple of years as municipalities faced growing infrastructure needs, the replacement of older projects, and the rising cost of labor and materials. Early in the year, the supply overwhelmed demand, but as the year went on, flows came back into the market, and demand eventually outstripped supply. What we’re seeing now is a reversion to the mean, with lighter supply and money returning. It sets us up for a more balanced environment as the rest of the year plays out.
2 Why should investors consider municipal bonds in their portfolios?
Adam: Munis work well for investors with taxable accounts or at higher tax brackets. Beyond that, they provide diversification and risk management as they tend to be less volatile than other fixed income instruments and act as a dampener in the portfolio. They also have one of the lowest correlations with the stock market, as they’re backed by more stable state and local revenues rather than corporate earnings. And there’s also the altruistic act of supporting your community infrastructure projects.
3 What differentiates your team’s approach to managing municipal bond portfolios?
Adam: We’re looking for bonds that we believe are priced below their intrinsic value. Then, hopefully, as they move back toward their intrinsic value, we’ll sell them and move on to the next opportunity. We take an active approach—muni bonds are one of the asset classes where active management adds the most value because it’s an incredibly inefficient market.
About the Portfolio Intelligence podcast
The Portfolio Intelligence podcast features interviews with asset allocation experts, portfolio construction specialists, and investment veterans from across Manulife John Hancock’s multimanager network. Hosted by John Bryson, head of investment consulting at Manulife John Hancock Investments, the dynamic discussion explores ideas advisors can use today to build their business while helping their clients pursue better investment outcomes.
Important disclosures
Important disclosures
This podcast is being brought to you by John Hancock Investment Management Distributors LLC, member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speakers, are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.
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Transcript
Transcript
John
Hello and welcome to the Portfolio Intelligence Podcast. I’m your host, John Bryson, head of investment consulting and education savings at Manulife, John Hancock Investments.
Today is March 12, 2026—approaching tax season. According to the Congressional Budget Office, Americans are expected to pay over $2.5 trillion in income taxes in 2026. For many investors, that may be the biggest check you’ll write all year. And that’s exactly why tax-efficient investing matters, and why municipal bonds continue to be an important part of an investor’s portfolio.
To talk about the opportunities in the municipal bond market, I’ve invited Adam Weigel, senior managing director and head of municipal securities at Manulife Investment Management, to our podcast. Adam, welcome.
Adam
Great to be here, John. Yeah, so nobody’s excited about a higher tax burden—except maybe municipal bond managers. That creates more demand for our product, and we could use that. So 2025 was a bumpy year, absolutely. If you look at returns, municipal bonds at the end of the year ended up okay, with the index up about four and a quarter. But compared to some of the other fixed income indexes, it underperformed for the year.
There are a couple of reasons for that, but the big one is supply in our market. There’s been an increase in supply for the past couple of years. Municipal bonds fund infrastructure in our country, and we’ve had a growing need for new infrastructure to replace old infrastructure. But the cost of that infrastructure has also gone up significantly—both labor costs and material costs. Just think about steel and copper and things like that costing more, and then the cost of labor to build this stuff.
So we saw a lot of supply last year, early in the year, that overwhelmed demand. There were also issues with the new tax bill, and concerns that, in order to pay for it, they had to find some offsets. The municipal bond tax exemption was on the table. If they removed the tax exemption on municipal bonds, it would save the government quite a bit of money, and that might be an offset. Turned out that didn’t happen.
We did see flows come back into the market, and we ended the year with demand outstripping supply—but it took a while, and we really never caught up to corporates or Treasuries. On a standalone basis, it was fine, but it was an underperforming year.
What we’re seeing this year is a little bit of a reversion to the mean, where municipal bonds are outperforming as money comes back into the market and supply has been a little bit lighter. But we’ve got ten months to go here in 2026, and we’d expect it to look a lot like 2025. It’ll probably be a bumper year, with periods where we have a lot of supply and demand. There are some geopolitical issues occurring right now that are driving Treasury rates up, and that will leak into our market, too. We are a separate market, but we are correlated to U.S. Treasuries. If Treasuries trade off significantly, we’re going to move as well.
So, a good start here, but I think we’re kind of holding on and seeing how things go. No big issues with credit. State and local government finances are okay. We’re probably past peak credit in terms of real positive numbers. You’re seeing some deficits out there, but mostly they can be handled. I think it’s going to be a coupon-clipping year for municipal bonds, with maybe a little bit of tailwind from rates at the end of the year.
John
Okay. Got it. We’re going to dig into a couple of things that you touched upon later in the podcast. So, big picture: for investors who may not live and breathe municipal bonds, why should they've a place in portfolios today? And what’s generally different about this asset class compared to other parts of fixed income?
Adam
Yeah. So I think there are a couple of reasons. Certainly in taxable accounts, or if you have clients in the higher tax brackets, municipal tax-free income is what you’re looking for, and it makes a lot of sense. Taxes on corporate bonds, Treasuries, and other taxable instruments eat up a lot of your income, so avoiding that is very helpful. And a lot of times, at the end of the day, you’re better off buying a tax-free bond rather than buying a taxable bond and paying the taxes. So that’s one—why people buy munis generally.
But I think a lot of people don’t think about the context of how they react and how they fit into the rest of your portfolio. Diversification and risk management are big components. Munis tend to be less volatile than other fixed income, and they’re really a dampener to your portfolio. We try to think of municipal bonds as a separate bucket. You’re not saying, “I don’t buy municipal bonds, so I’m going to buy large-cap growth.” You’re thinking about what you’re going to buy in the fixed income portion of your portfolio.
Municipal bonds have one of the lowest correlations with the stock market, especially compared to other fixed income. If you think about corporate bonds, they’re backed by corporations. If revenues are down or net income is down, you might see spreads widening. Munis are backed by state and local government revenues. Cash flow from electric utilities and water and sewer systems is less economically impacted by recessions and changes in the economic cycle, so they tend, over time, to be a little more stable than the rest of your portfolio.
There’s also the altruistic idea of supporting your community, supporting infrastructure, and investing in things that do public good. All munis have to be issued to provide a public good; otherwise they wouldn’t have access to our market. So yeah, I think it’s a great diversifier and dampener. But it really comes back to that tax-exempt income—a lot of high-net-worth investors are looking for a lower tax bill. As the tax burden increases, that will create more demand for munis and should help performance over time. I think it makes up what should be a well-rounded portfolio and provides a little bit of a dampener.
John
Excellent—numerous advantages that many people don’t think about when they think simply “munis.” That’s great. So, Adam, you run several successful municipal bond strategies. When you look across the muni landscape, what do you think you and your team do differently than a lot of other managers?
Adam
Yeah. So I think munis, for most of my career—and probably before that—have been viewed as a buy-and-hold investment. You buy your municipal bond, you clip your coupon, it matures, and then maybe you buy another one.
Within the context of our portfolios, we’re thinking about munis in a total return landscape—that we’re not just buying a bond and sitting on it. We’re looking for the best places in the market to invest our customers’ money. We’re looking for bonds we think are priced below intrinsic value. We’ll go out and buy those, and then hopefully they get back to intrinsic value, we’ll sell them, and we’ll move on to something else. So we are active.
And I think munis are one of the asset classes where active management adds the most value. It’s an incredibly inefficient market. There are 60,000-plus municipal issuers and 1.2 million CUSIPs or more. It’s a very large market—over $4.5 trillion. There are inefficiencies where, if you can be active—roll up your sleeves, do good credit research, trade actively, shift in and out of different sectors and structures—then for us, we think about beating our peers, but also providing the customer with a great experience in their portfolios.
So we’re scratching and clawing for basis points. We’re not trying to beat the market by 4% or 5%; we’re trying to beat the market by 20 or 30 basis points. If you can do that consistently, you’ll rise to the top of your peers. That’s the day-to-day, but it’s also thinking strategically within our portfolios.
We do look at the rate picture and try to make some projections, but we’ve found we’re not great at predicting interest rates, so we don’t stray too far. We try to do what we’re good at, which is credit trading—looking for really good bonds that we think are going to outperform. So it’s a constant process. It’s not buy it, sit on it, and clip the coupon. It’s buy it, clip your coupon, and make sure you’re buying good bonds that are going to perform well. And that ultimately flows to the customer and moves us up the league tables.
John
Excellent. So, you mentioned rates. With rate expectations still shifting—certainly a lot of different news items coming our way every single day—and money market yields staying pretty active, I imagine there’s still a lot of people in cash. How do you see demand for munis changing over the next year? Are you starting to see investors move out of cash, or are they still hesitant?
Adam
Yeah. So I think in December and January and February—and even in March—the money that we’re seeing coming into our market, and we’ve had some very good months of inflows, is primarily coming out of money market funds. With the Fed cuts you saw last year, some of those money market fund rates came down to the point where they aren’t a home run anymore. There’s a case to be made that you can move into fixed income and not give up a lot. You’re taking on a little bit of duration risk, but a lot of that money was in fixed income two or three years ago, moved out in ’22 and ’23, and has been sitting there.
Now there are very attractive yields—especially munis—and I think that’s why we’ve seen more flows into our market than others. The rate is attractive relative to money market rates. And if the Fed is going to cut rates—and maybe some of the deeper geopolitical issues are pushing those rate cuts out—timing-wise, money market rates will come down if the Fed does cut. Do you want to be ahead of that, or do you want to wait until it happens and then move out and potentially miss a rally in fixed income?
So yeah, I think we’re seeing that. And the underperformance in munis last year set us up to be successful this year because yields were higher than they probably should be, and investors are seeing that and moving out of money market funds.
John
All right. Very good. So let’s zoom out a bit. What longer-term trends in state and local government financing are you paying close attention to, and how might that shape muni credit quality in the market over the next few years?
Adam
Yeah. So I think a couple of things drive credit quality: revenue at the state and local level is one, and then expenses. Everything’s gotten more expensive, and we’re seeing issues with budgets now that aren’t necessarily a revenue issue—it’s the costs. So we’re seeing costs move up: labor and materials and all sorts of other stuff.
But on the revenue side, we are seeing very strong revenue flow—property tax, sales tax, income tax, corporate taxes. And for those listening who own a house, your property taxes don’t go down. They’ve been moving up pretty consistently. So we’re seeing revenue flows from that space somewhat offsetting the expense side.
But if you also think about the debt being put on based on infrastructure, we have huge infrastructure needs in our country, and we’re going to continue to see bonds being issued in our market at a fairly high level. We don’t expect supply to slow down anytime soon.
So while revenue and expenses are fine, we’re watching the debt levels of some of these entities as they move up—replacing aging bridges, building schools and hospitals, things like that. It’s an issue. What we saw last year is probably steady state in credit. The upgrades and downgrades from the rating agencies were roughly in line, and we haven’t seen a real degradation in credit. We have seen some states like California where they ran very large surpluses and now they’re running deficits. Some of the more boom-bust states are seeing a little bit of stress on their income statements.
Adam
The other thing at the state level is we’re seeing new taxes being implemented in Massachusetts, a millionaire’s tax. They’re talking about wealth taxes in California. I’m not sure that gets anywhere, but I think states are trying to figure out how to tax people in different ways—probably in a more progressive way.
People have watched Massachusetts, and we’ve heard from various governors that they saw the Massachusetts millionaires tax go into effect and raise a lot more money than they ever thought it would raise, and they haven’t seen a lot of movement out of the state by those taxpayers. So that’s good for munis, because any increase in taxes drives demand for municipal bonds. But I don’t think we’re at peak credit anymore. So for us, as credit analysts looking at these state and local governments, we’re paying close attention to how all these pieces come together.
John
Okay. Two other things I’m sure you’re paying attention to because they’re on every investor’s mind. First would be Iran and geopolitical challenges. I want to hear how you think about factoring the risks of tensions with Iran and global tensions—and how that shows up in the muni market.
Adam
Yeah. So if there is a market that is best insulated from geopolitical issues, in theory it should be munis. Our credits really have nothing to do with anything overseas. We’re dollar-denominated, and we’re U.S.-based investors almost exclusively. But we are a rates-based market, so if Treasury rates move up, our rates are going to move up too.
If I had a crystal ball before all this happened and was day trading the market, I probably would have been long oil, short equity, and long bonds—and that probably would have worked, especially on the bond side. Our rates have moved up, and I think the market is pricing in a longer conflict and a bigger impact from energy costs flowing into inflation. Higher inflation projections are going to push rates higher. We’ve certainly seen the 10-year Treasury move 35 basis points. Rates have gone up, so prices have gone down. After having a very good January and February, March has been weak.
The question is: how long is this going to last, and what’s the longer-term impact of energy costs? All of our entities at the state and local level produce energy, use oil, and use natural gas, and those costs go into their expenses.
On the AI side, I think AI is interesting. We have started using it to do analysis for us. There are some great use cases on the investment side—it makes us more efficient, so that’s super helpful. If you think about data centers and their massive energy usage, state and local governments—or public electric utilities—will have to provide that energy. Additional costs there mean more debt, and that means we’ll see greater issuance in certain sectors of our market. But hopefully some of the benefits—whether it be jobs or taxes—offset the increased investment on the energy side.
It’s a web out there, and there are a lot of different things that impact our market that you might not think about when you think about municipal bonds. But things happening in the Middle East have a direct impact on short-term volatility and short-term performance.
John
Excellent. There are a lot of things you mentioned today that I don’t think people think about when they think about muni bonds, and that’s exactly the point of this podcast—to dig in deep into these opportunities. So, Adam, last one for me: you’ve been doing this a long time. What is it about managing muni bond portfolios that keeps you excited in this space after all these years?
Adam
Yeah. I was actually just talking to one of our younger analysts earlier, and we’ve had kind of a frenetic morning here— a lot going on in a lot of different markets. And I just love coming in in the morning and seeing what’s happening in the market, thinking about what we’re doing in our portfolios. That’s what keeps me going.
And I also really like our market. I think it’s a market where, if you are active, you dig in, and you work hard, you can find opportunities that maybe others aren’t looking for—and ultimately that will drive outperformance. Our market changes constantly. There are new and different structures that come into our market, new issuers. We’re not looking at the same thing over and over and just deciding how to shift things around. We’re looking at new opportunities, new structures, and how to construct our portfolios in ways that we hope will provide very good returns for our shareholders and long-term satisfaction with what they’re getting from us.
So it’s fun. I never thought when I got into munis that I would be in it this long. But there is always something new and different. Whether things are going well or things are going the other way, there’s always something to think about and strategize about.
John
Adam, this is the second time I’ve had you on the podcast. It’s always a great conversation. I want to thank you for joining us today, and I’m going to have you back in the near future. Folks, if you want to hear more, please subscribe to the Portfolio Intelligence Podcast. And if you want to learn more, please visit our website. As always, thanks for listening to the show.
This podcast is being brought to you by John Hancock Investment Management Distributors, LLC, member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speaker, are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There’s no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.
Fixed income investments are subject to interest rate and credit risk. Their value will normally decline as interest rates rise, or if an issuer is unable or unwilling to make principal or interest payments. Investments in higher-yielding, lower-rated securities include a higher risk of default. Municipal bond prices can decline due to fiscal mismanagement or tax shortfalls, or if related projects become unprofitable.
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