3/04/2022 Market Commentary
Municipal bond yields rose on Wednesday and Thursday, which offset improved pricing earlier in the week and ultimately caused yields to finish the week slightly higher than where they started. In the early days of the week, municipal bond yields received some relief from attractive muni/Treasury ratios and a flight-to-safety bid bringing in additional investors. The drop in rates was short-lived, as things reversed course on Wednesday, when yields increased by 3 basis points along the curve, and into Thursday when yields climbed by as many as 7 basis points.
Municipal bond mutual funds saw $2.8 billion in fund outflows during the week, which brings the net outflows in 2022 to more than $8.5 billion. The continued outflows have taken a toll on the market, as municipal bond mutual funds are the primary source of demand for municipal bonds. The drop in demand has caused municipal bonds to underperform Treasuries.
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| February 25, 2022 | 1.60% | 1.98% |
| March 3, 2022 | 1.61% | 2.03% |
| Change (bps) | +1 | +5 |
Treasury yields have trended downward as of late, as the war in Ukraine has caused investors to sell off equities and look for shelter in government bonds. Treasury yields had dropped by as many as 28 basis points during the first half of the week. However statements from Federal Reserve Chairmen Powell on Wednesday cut those gains in half, when Powell said he expects a 25 basis point rate hike at the Federal Open Market Committee meeting taking place in March. Powell stated future hikes could be higher if needed to cool inflation.
Treasury yields over the past week
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| February 25, 2022 | 1.99% | 2.29% |
| March 3, 2022 | 1.85% | 2.23% |
| Change (bps) | -14 | -6 |
Written by Dan Shaw, Oppenheimer & Co. Inc., Public Finance Associate.
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