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When the pandemic began, we predicted that municipal bonds would hold up better than they did during the global financial crisis (GFC), which put a severe strain on municipal budgets for several years. Importantly, though, even during the 2009-10 economic slump, municipal credit held its own, with no appreciable increase in defaults. What made us think the market would hold up even better when faced with the economic fallout from the pandemic? It came down to these three factors, which we think are important to take into account when analyzing municipal bonds—the high-grade portion of the market in particular:
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