Public Finance
7/07/2023 Market Commentary
July 07, 2023
The municipal bond market outperformed Treasuries this week which saw yields rise sharply across the curve. Bond yields came under pressure as a result of news from the Federal Reserve and this week’s robust jobs report. However, a lack of new supply kept municipal bond yields in check, with the 10- and 30-year MMD each ending the week up by only 5 basis points. The Muni-to-UST ratio declined to 59% in year 2 and 65% in year 10.
Additionally, municipal bond issuance hit its highest monthly total of the year at $34 billion in June. However, this is still a decline of 9% compared to June of 2022.
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| June 29, 2023 | 2.56% | 3.49% |
| July 6, 2023 | 2.61% | 3.54% |
| Change (bps) | +5 | +5 |
The minutes from the Federal Reserve’s June meeting were released this week and showed that the Federal Reserve is largely in agreement on raising interest rates further, albeit at a much slower pace compared to last year. The U.S. economy remains resilient and Fed officials believe that additional rate hikes will be needed to slow the economy and rein in inflation to the 2% target rate.
Employment data released on Thursday further solidified the view among investors that additional interest rate hikes are on the way. The data showed that new jobs surged by more than 497,000 in June. This was the largest monthly jobs gain since July of 2022, and double what economists had expected. Short term treasury rates rose sharply as a result, with the 2-Year Treasury hitting a 16-year high.
Treasury yields over the past week
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| June 29, 2023 | 3.85% | 3.92% |
| July 6, 2023 | 4.05% | 4.01% |
| Change (bps) | +20 | +9 |
Written by Michael Garcia, Associate, Oppenheimer & Co. Inc., Public Finance.
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