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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