3rd Quarter MuniLand Rally and New Issuance remains "Priced To Sell"

States, local governments, and municipal authorities continue to issue new debt and refinance older MuniBonds at a furious pace. Many if not all want to straighten out their MuniBonds/finances before the November 5^th US Presidential election. YTD issuance through September 25^th totals $327bn, up 36% y/y.

It has been exciting to bid on these new deals and reward our clients with these new MuniBonds which are “priced to sell” with higher yields and lower prices than compared to trading in the secondary market. The forward-looking calendar is looking at another 4-5 weeks of heavy new supply coming to the MuniBond marketplace. In other words, more attractively priced MuniBonds with juicy yields to lock in for clients.

In the third quarter, MuniBond returns, measured by the Bloomberg Municipal Bond Index (LMBITR), moved sharply higher into positive territory ytd 2.2%, after posting a sluggish, negative 1H24 return of -0.4%. These sharply higher returns in 3Q24 can be attributed to the anticipation and actualization of a 50bps Fed Cut, and strong retail demand. I have been writing about the growing retail demand evidenced by consecutive weeks of net inflows into #MBMFs all summer.

Not only is the retail demand for #MuniBonds remaining net positive, but net inflows are also accelerating into #MBMFs hitting 13 straight weeks through the end of September. Third quarter #MBMFFs grew to $16.5bn compared to $9.5bn Q1 and $1.5bn Q2.

Over the past several months especially, we have been extremely busy selling ripened MuniBonds with 1-3 years left until a maturity date or call date. Our goal is to sell a MuniBond at a level with a 3% or less yield and then reposition the capital into a MuniBond at 4% plus yield, a 33% increase, with 8-10 years of call protection. The Federal Reserve enacted a 50bps Fed Funds rate cut in September 2024. The 1-year US Treasury Bill now has a yield below 4% after yielding above 5% for most of 2024.

For all of 2024, we have been staying on the message of locking in the best yields in MuniLand that we have seen in a generation before interest rates fall. Secondly, we have been extremely vocal and busy advocating the extension of duration along with at least 8-10 years of call protection for our clients. Thirdly, it appears that the individual investor has gotten the message through the evidence of positive weekly #MBMFFs (Municipal Bond Mutual Fund Flows).