Public Finance
7/14/2023 Market Commentary
July 14, 2023
The Municipal bond market underperformed Treasuries this week which saw yields drop dramatically across the curve. The June CPI report was released on Wednesday and showed that both headline and core inflation cooled sharply to their lowest levels since 2021. Headline and core inflation rose at annual rates of 3% and 4.8% respectively. Core inflation excludes volatile food and energy prices and is a more favored gauge of inflation by the Federal Reserve. Both inflation readings came in much lower than economists expected, suggesting that the Federal Reserve is making real progress in its quest to tame inflation.
Despite the great news on inflation, Municipal yields experienced only a modest rally, increasing Muni-to-UST ratios as a result. Ratios ended the week at 63% in year 2 (+4%) and 69% in year 10 (+4%).
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| July 6, 2023 | 2.61% | 3.54% |
| July 13, 2023 | 2.59% | 3.51% |
| Change (bps) | -2 | -3 |
Treasury yields experienced a much more substantial rally as a result of the positive news on inflation with yields declining by as much as 40 basis points on the short end. Investors believe the Federal Reserve is still likely to raise rates by 25 basis points at the next FOMC meeting, but they have begun to reassess their rate hike expectations for the rest of the year.
Treasury yields over the past week
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| July 6, 2023 | 4.05% | 4.01% |
| July 13, 2023 | 3.76% | 3.90% |
| Change (bps) | -29 | -11 |
Written by Michael Garcia, Associate, Oppenheimer & Co. Inc., Public Finance.
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