4/9/2021 Market Commentary
Tax-exempt bond yields pushed lower throughout the week as a result of low bond supply, strong inflows into municipal bond mutual funds, and anticipation of higher tax rates for top earners. On the supply side, volume has been lower leading up to and following the holiday weekend, with about $8 billion coming to market over the past week, and only $2 billion the week prior. On the demand side, inflows into municipal bond mutual funds topped $2 billion this week, the most since early February. The strong demand ate through the low amount of bonds in the market and pushed rates lower.
Tax-exempt yields over the two weeks
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| March 26, 2021 | 1.11% | 1.74% |
| April 8, 2021 | 1.03% | 1.64% |
| Change (bps) | -8 | -10 |
Tax-exempt yields have also benefitted from a more stable Treasury market in the past two weeks. In recent months, rising Treasury yields have added constant pressure on tax-exempt yields, but this has paused during the last two weeks. On Wednesday, the Federal Open Market Committee released their minutes from the FOMC meeting on March 16th and 17th. The minutes showed that some participants pointed out the possibility that the high levels of fiscal spending could cause more expansion than anticipated, but that it would be “some time” before further progress would cause the Fed to reverse their current policy of offering the economy as much support as possible.
Treasury yields over the past two weeks
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| March 26, 2021 | 1.66% | 2.36% |
| April 8, 2021 | 1.63% | 2.32% |
| Change (bps) | -3 | -4 |
Written by Dan Shaw, Oppenheimer & Co. Inc., Public Finance Associate.
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