Western Asset Managed Municipals Fund · NYSE:MMU
Western Asset Managed Municipals Fund — Investor Presentation (April 2024)
29 slides from Western Asset Managed Municipals Fund's investor presentation, Apr 4, 2024
Slide 1: 2Q24 Market & Strategy Update
2Q24 Market & Strategy Update April 4, 2024 Ken Leech John L. Bellows, PhD, CFA Co-Chief Investment Officer Head of Broad Markets 1
Slide 2: 2024 Global Outlook
2024 Global Outlook Disinflation ongoing but uneven Central banks will ease policy to normalize real interest rates Economy has remained resilient, but is set to slow Fixed-income outlook US growth will slow but should avoid recession Global growth has downshifted and China is now a source of de
Slide 3: Inflation
Inflation “I think they haven't really changed the overall story which is that of inflation moving down gradually on a sometimes-bumpy road toward two percent.” — Chair Powell, March 20, 2024 Core PCE Inflation 12m %ch, ar 6m %ch, ar 3m %ch, ar 8.0% 6.0% 4.0% 2.0% Fed Target of 2% 0.0% -2.0% Apr 18
Slide 4: Global Disinflation Is Broad-Based and Ongoing
Global Disinflation Is Broad-Based and Ongoing Advanced Economies: Composite CPI Percent Change Year over Year, Seasonally Adjusted, 2015=100 Eurozone Inflation 10 12 8 10 8 6 Percent 6 Percent 4 4 2 2 0 0 -2 -2 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2013 2014 2015 2016 2017 2018 2019 202
Slide 5: Labor Demand Settling Into a Moderate Range
Labor Demand Settling Into a Moderate Range January payroll print subsequently revised down; job openings declining Nonfarm Payroll Employment Thousands, Monthly Change Job Openings and Hiring Plans 1000 12 35% 3 month moving average Job Openings (left) 900 Monthly Small Business Hiring Plans (%, ri
Slide 6: Wage Growth May Already Be Consistent With Fed Mandate
Wage Growth May Already Be Consistent With Fed Mandate Wage growth ~4%, Productivity ~2% Inflation ~2% Wage Growth Productivity 120 Ave Hourly Earnings (3m %ch) Real Output Per Hour 8% ECI (quarterly %ch) 2% Trend (Productivity Growth) 110 100 % Change, Annualized Rate 6% 90 Productivity Index Gro
Slide 7: Inflation: More Disinflation Ahead
Inflation: More Disinflation Ahead CPI housing inflation measures still elevated relative to surveys; goods prices can stay in deflation. Rent Inflation Goods Inflation 18% 14% 8 BLS: Rent of Primary Residence Goods Inflation (left) 16% 12% Zillow: Observed Rent Index China Import Prices (right) 6 1
Slide 8: Receding Recession Risks
Receding Recession Risks Balance sheets not problematic; Inflation was most cited concern. Debt Outstanding Inflation Concerns 90 40% Nonfinancial Corporate Businesses ISM Services: Prices Paid 100% Households (Index, left) 80 Small Business Reporting 30% 80% Inflation is Largest Problem (%, right)
Slide 9: US Presidential Election: Major Differences: Tax Rates & Trade Policy
US Presidential Election Major Differences: Tax Rates & Trade Policy US Imports from China and Mexico Federal Government Revenues, % of GDP US Dollars, 6m moving average, seasonally adjusted 21% 55 Mexico 20% 50 China 19% 45 18% 40 17% 35 $ Billions 16% 30 15% 25 CBO Baseline 14% 20 Extend 2017 Tax
Slide 10: US Federal Reserve
US Federal Reserve On track for a rate cut in June Fed Funds and Core PCE 8% “[T]he risks are really two-sided here; we're in a Fed Funds Core PCE, 3 Month, Annualized Rate situation where if we ease too much or too soon, we could see inflation come back, and if we ease 6% too late, we could do unne
Slide 11: Europe
Europe Little growth, inflation close to target, wages moderating Growth: Modest at best – Service side a little better but manufacturing still slowing Inflation: Moving closer to target – Wage growth falling quickly ECB: More pieces of the disinflationary jigsaw coming into place – 1st cut li
Slide 12: United Kingdom
United Kingdom BoE to cut by more than the market is pricing Energy and food price inflation is coming down forcefully. Goods and services inflation are also trending downwards. Inflation is likely to fall below target in April Contributions to UK Headline Inflation (YoY) Services Goods Food CPI
Slide 13: China Likely to Avert Acute Contraction Amidst Ongoing Policy Response
China Likely to Avert Acute Contraction Amidst Ongoing Policy Response But 5% growth no longer a market tailwind China YoY CPI Debt, demographics and de-globalization remain long-term 6 secular growth headwinds 5 4 China is prioritizing new economy infrastructure/manufacturing in 3 order to meet
Slide 14: Japan
Japan Positive development of growth and wages are expected with higher inflation forecasts. BoJ Tankan survey: employment conditions DI suggests a Based on BoJ’s forecasts, core CPI is expected to be above 2% deepening labor shortage. of BoJ’s target for three consecutive fiscal years. 30 5 20 Core
Slide 15: EM Central Banks Have Been Ahead of the Curve
EM Central Banks Have Been Ahead of the Curve EM vs US Overnight Rates 12 EM policymakers tightened policy aggressively, starting in early 2021 well in front of the Fed. 10 With both EM and DM inflation having peaked, EM central banks have already started to cut rates despite the Fed 8 indicating no
Slide 16: Spread Sector Excess Returns
Spread Sector Excess Returns Year-to-Date Ending 31 Mar 24 5 4 3.8 3 2.6 2.4 2.2 2 1.6 1.5 Percent 1.4 1.4 1.0 1.1 1 0.8 0 -0.1 -1 -1.2 -2 EM US US IG US Australia UK IG Euro IG US US Euro Non- EMD European Local MBS Credit Bank IG Credit Credit Credit CMBS High- High- Agency USD Banks Currency Loan
Slide 17: Valuation: US Credit at +90 OAS, "Richly Valued"
Valuation: US Credit at +90 OAS, “Richly Valued” Bloomberg U.S. Credit Index: Option-Adjusted Spread 600 +545 bps 500 Option-Adjusted Spread (bps) 400 +341 bps 300 +241 bps +231 bps 200 +154 bps Historical Average¹: +139 bps Historical Average Excluding Financial Crisis and Pandemic²: +125 bps 100 C
Slide 18: Investment-Grade Credit
Investment-Grade Credit Cash flow and debt metrics are healthy. Profit Margins 34 32 30 Percent 28 26 24 22 20 1Q04 1Q06 1Q08 1Q10 1Q12 1Q14 1Q16 1Q18 1Q20 1Q22 ~180 Non-Financial Companies (JULI Based) Weighting based on amount of debt in the benchmark Source: J.P. Morgan. As of 31 Dec 23 Median Le
Slide 19: Foreign Demand Remains Elevated
Foreign Demand Remains Elevated Foreign Flows Into US IG by Year Foreign Demand Has Helped Absorb Healthy Net Supply 500 Year Net Supply Adj Purchases % 400 325 343 2016 521,588 325,206 62% 300 222 250 2017 527,360 250,414 47% Flow ($bn) 181 201 200 160 2018 329,012 -9,538 -3% 126 77 2019 229,157 18
Slide 20: High-Yield Default Rate Off Record Lows
High-Yield Default Rate Off Record Lows 18 16 14 12 10 Percent 8 6 Average: 4.61% 4 3.75% 2 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Moody's Investor Service. As of 29 Feb 24 20
Slide 21: Low Refinancing Needs Should Support a Low Default Rate
Low Refinancing Needs Should Support a Low Default Rate Maturity Wall for High-Yield Bonds and Loans 600 Bloomberg U.S. Corporate High Yield 2% Issuer Capped Morningstar LSTA Leveraged Loan Index 500 400 USD (billions) 300 200 100 0 2024 2025 2026 2027 2028 2029 2030 2031 2032 and There is no assura
Slide 22: Agency MBS Are Attractive With Low Prepayment Risk and No Credit Risk
Agency MBS Are Attractive With Low Prepayment Risk and No Credit Risk With current mortgage rates at 7% and the average borrower locked into a sub 4% rate, prepayment risk is low Agency MBS offer yield pick over A+ Corporates in higher coupons Yield vs. Duration UMBS 30-Yr MBS Coupons IG Corp A+
Slide 23: Commercial Mortgage (CMBS) Recovery Underway
Commercial Mortgage (CMBS) Recovery Underway CMBS spreads have outperformed to start the year but the credit curve remains steep to historical norms Office sector has been uniquely impacted by Covid; however, the four other primary commercial real estate sectors exhibit neutral to positive funda
Slide 24: EM Local Market Performance Has Underperformed Previous Cycles
EM Local Market Performance Has Underperformed Previous Cycles US exceptionalism has weighed on returns. EM Sub-Sector Performance from Date of Last Fed Hike - July 2023 EM FX EM Rates EM Frontier EM IG 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% -2% -2% -4% -4% -6% -6% -8% -8% Jul 23 Aug
Slide 25: Nearshoring Set to Benefit EM
Nearshoring Set to Benefit EM Some EM countries/regions are set to benefit from the evolution of global supply chains to reflect geopolitical considerations in addition to manufacturing costs We would highlight Mexico, Dominican Republic, Costa Rica and India as potential beneficiaries of nearsh
Slide 26: 2024 Global Outlook
2024 Global Outlook Disinflation ongoing but uneven Central banks will ease policy to normalize real interest rates Economy has remained resilient, but is set to slow Fixed-income outlook US growth will slow but should avoid recession Global growth has downshifted and China is now a source of de
Slide 27: Questions & Answers
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Slide 28: Thank you.
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Slide 29: Risk Disclosure
Risk Disclosure © Western Asset Management Company, LLC 2024. The information contained in these materials (“the materials”) is intended for the exclusive use of the designated recipient (“the recipient”). This information is proprietary and confidential and may contain commercially sensitive inform
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