If you were trying to outguess the municipal bond market in 2022, you probably had a bad year.

Investors who relish tax-free income, on the other hand, profited handsomely.

Those are the takeaways we’ve noted as commentators offer mea culpas for predictions they made last year and submit their outlooks for 2023.

Bond market guessing is unnecessary

Crystal balls are notoriously unreliable in the long term, which is why we decline to employ them. No one can accurately predict what, how and when events will impact the bond markets, and it doesn’t pay to try.

Consider the plight of those trying to outguess the Federal Reserve Board, an especially popular exercise among municipal market seers.

Back in December 2008, amid the Great Recession, the Fed reduced the overnight lending rate to effectively zero, where it stood for seven years.

Thereafter, rates ticked up until the pandemic hit. In April 2020, the Fed again trimmed the rate to effectively zero, where it stood for about two more years.

Then inflation took off. In response, beginning last March, the Fed raised rates seven consecutive times and has signaled it will do so again at its next meeting in February.

During this time, commentators were flush with prognostications, though none, as far as we can tell, accurately foresaw these events. Nevertheless, they weren’t dissuaded from trying.

Reading the Fed tea leaves has always garnered headlines. Of course, it’s impossible. Worse, the fed funds rate is poorly understood by many investors and those following such forecasts usually miss out, as we’ve discussed (“Don’t Be Fooled by the Fed”).

Muni investors keep it simple

In addition to misfiring on their Fed projections, pundits also failed to mention how the massive outflows from muni bond funds that began early last year resulted in extraordinary yields for buyers of individual bonds (“When Sellers Present Buyers With a Muni Opportunity”).

Instead, they focused on the selling tsunami, and didn’t discuss until recently, the value available to investors.

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The most salient takeaways we gleaned from 2022 simply reinforced what we learned about the market decades ago: Allow municipal bonds to do their job – generate a steady stream of tax-free income.

Invest when funds are available and focus on quality. When unique opportunities arise, take advantage of them.

It’s simple, you don’t need to be a clairvoyant and you can be assured we’ll have a similar outlook next year.