7/09/2021 Market Commentary
Municipal bond yields have declined each day this week due to a lack of new bond issuances coming to market during the weeks surrounding the July 4th holiday. Last week a meager $6.2 billion came to market, and during the current 4-day week, an expected $4.7 billion has come to market. Demand for tax-exempt bonds have remained strong, with municipal fund mutual funds having now seen 18 consecutive weeks of inflows. During this inflow streak, eleven of the weeks were inflows above $1 billion, and four of the weeks were above $2 billion. Additionally, the month of July sees higher reinvestment demand, as investors look to reinvest previous bonds that have matured recently. The strong demand and low supply in recent weeks has pushed yields lower, with the 30-year MMD coming down by 19 basis points over the last two weeks.
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| June 25, 2021 | 1.01% | 1.52% |
| July 8, 2021 | 0.84% | 1.33% |
| Change (bps) | -17 | -19 |
Tax-exempt yields have also benefitted from a rallying Treasury market. Treasury yields have defied the logic of those who believe rates should be higher by dropping as much as 26 basis points over the last two weeks. Recent economic reports have not been poor, but they have not been strong enough to meet the Federal Reserve Board’s “substantial further progress” goal that they would like meet before raising interest rates. This was the focal point of the June Federal Open Markets Committee Meeting minutes that were released Wednesday afternoon. The minutes revealed that some officials saw a tapering of asset purchases could occur earlier than discussed at previous meetings, but other officials stated that they were less clear about underlying economic momentum and needed more time to gauge the market.
Treasury yields over the past two weeks
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| June 25, 2021 | 1.54% | 2.17% |
| July 8, 2021 | 1.29% | 1.91% |
| Change (bps) | -25 | -26 |
Written by Dan Shaw, Oppenheimer & Co. Inc., Public Finance Associate.
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