1st Quarter MuniLand Update


April 10th 2023

The MuniBond market continues to benefit from a strong technical picture and economic data, both of which point to a slowing US economy.

The Bloomberg Municipal Bond Index (Index) returned 0.91% for the week and is now up 3.72% year to date.

Less Supply in ’23:

      2023 Tax-exempt issuance is down 23% compared to the first three months of 2022

On the Demand side:

  • Recent new issuance deals have been as much as 20x oversubscribed
  • Mutual Funds inflows remain weak
  • However, there is demand for separately managed accounts is robust

The Big Picture:

Money Market Assets at an all-time high over $5.4 Trillion

Investors are hanging out in short-term money market funds earning over 4%

Many of these investors are the ones who sold out of MuniBonds and MuniBond Bond Funds in 2022 when interest rates were rising and inflation growth was not slowing down. When will their fear of higher rates change to a desire of locking-in juicy tax-exempt yields?

However, it seems to be more and more apparent that the US economy is slowing which will lead to the Federal Reserve pausing or even cutting interest rates.

Finally, the summer technical is not far away. As a reminder, the summer technical refers to the month of June-July-August where historically there is a mismatch of low supply (new issuance) combined with significant reinvestment pressure from coupon payments and maturing bonds (high demand).

Write to jeff@watkinsoncap.com
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