05/03/2024 Market Commentary
- May 3, 2024
Municipal bond yields held steady for much of the week, before edging a few basis points lower on Thursday. Wednesday’s Federal Open Market Committee Meeting was the major storyline of the week, where the Federal Reserve Board opted to hold the federal funds rate range between 5.25% and 5.50%, as expected. Fed Chairman Jerome Powell came across as less hawkish than expected during his press conference, which was a relief to financial markets and allowed interest rates to drop slightly.
This week, Municipal bond mutual funds saw their second consecutive week of inflows, with investors adding approximately $515.5 million into municipal funds.
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| April 26, 2024 | 2.81% | 3.96% |
| May 2, 2024 | 2.80% | 3.93% |
| Change (bps) | -1 | -3 |
On the supply side, municipal bond primary issuances saw an increase in volume for the fourth consecutive month. April saw $40.5 billion come to market, a 21% increase since April 2023. So far this year, a total of $143.2 billion has come to market, which is a 26% jump from this point last year. The rise in volume can be attributed to issuers becoming more comfortable with the idea that rates may be higher for longer. Additionally, issuers that had pushed off financings in 2021 and 2022 created a pent-up demand for bond financings that we are now seeing.
Treasury yields drifted lower this week as well, being heavily influenced by the mid-week FOMC meeting. During Powell’s presser, he stated that inflation remains too high to start cutting rates anytime soon. However, his message wasn’t overly hawkish, by also stating that today’s rates are restrictive enough for inflation to slow in the months ahead. These statements provided some relief to the markets, leading analysts to believe that a rate hike is unlikely and that future rate cuts could still occur this year. The market is currently pricing in a 60% chance that the Fed will enact a rate cute at or before the September FOMC meeting.
Treasury yields over the past week:
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| April 26, 2024 | 4.67% | 4.78% |
| May 2, 2024 | 4.57% | 4.72% |
| Change (bps) | -10 | -6 |
Written by Dan Shaw, Director, Oppenheimer & Co. Inc., Public Finance.
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