Public Finance
12/01/2023 Market Commentary
December 01, 2023
Municipal bond yields continued to drop this week, as investors remain hopeful that the Fed has concluded their rate-hiking campaign. Ever since the FOMC meeting on November 1st, municipal bond yields have rallied significantly. Since the meeting, the 10-year MMD has dropped 95 basis points, and the 30-MMD has dropped 80 basis points. What’s remarkable is that this rally has occurred without the return of substantial inflows into municipal bond mutual funds. While last week had inflows of $29 million, outflows returned this week, with investors pulling $63.7 million out of municipal funds.
November marked the third consecutive month with increased bond supply compared to 2022. November issuance rose 7.8% from the year prior, with $28.4 billion brought to market. While an improvement from 2022, it is still below the 10-year average of $31.9 billion for the month of November. Despite the uptick in volume over the last three months, volume so far in 2023 is still down 6.6% from last year.
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| November 24, 2023 | 2.94% | 4.00% |
| November 30, 2023 | 2.63% | 3.77% |
| Change (bps) | -31 | -23 |
Treasury yields have seen a rally as well in November, although not as significant as the rally seen by municipals. Since the FOMC meeting, the 10-year and 30-year Treasury yield has dropped by 47 basis points and 48 basis points, respectively.
With municipal bonds outperforming Treasuries this month, this has brought the 10-year Muni-to-Treasury ratio down to 61%. The 30-year Muni-to-Treasury ratio is currently sitting much higher at 84%, since long-term municipal yields didn’t drop as much as the 10-year MMD.
Treasury yields over the past week
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| November 24, 2023 | 4.48% | 4.61% |
| November 30, 2023 | 4.34% | 4.51% |
| Change (bps) | -14 | -10 |
Written by Dan Shaw, Director, Oppenheimer & Co. Inc., Public Finance.
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