Public Finance
12/15/2023 Market Commentary
December 15, 2023
Municipal bond yields plummeted this week after the Federal Reserve Bank announced it would hold rates steady this month, and forecasted three rate cuts in 2024. The Fed’s announcement came Wednesday after the December Federal Open Markets Committee meeting. Municipal yields reacted favorably to the news, with the entire MMD curve dropping by 17 basis points on Thursday. The 10-year MMD is now 28 basis points lower than where it started the year, and the 30-year MMD is right back where it started in 2023.
Despite the rally, investors continued to pull money out of municipal bond mutual funds, with outflows this week coming in at $524 million. With many investors now believing rates have peaked, analysts believe inflows in muni funds will soon return.
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| December 8, 2023 | 2.50% | 3.71% |
| December 14, 2023 | 2.36% | 3.57% |
| Change (bps) | -14 | -14 |
Treasury yields also fell this week after the Fed’s announcement. Fed Chairman Jerome Powell stated in his presser that they now expect the Federal Funds Rate target to be 4.625%, which is 75 basis points lower than the current rate. The Fed expects to achieve this over 3 rate cuts in 2024. While the timing is unknown and any cuts will be data-driven, many investors are hoping to see the first cuts occur by April or May of next year. Powell emphasized that these predictions are very preliminary, and that inflation remains higher than they would like, with no guarantee it will continue to decline.
Treasury yields over the past week
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| December 8, 2023 | 4.24% | 4.32% |
| December 14, 2023 | 3.94% | 4.06% |
| Change (bps) | -30 | -26 |
Written by Dan Shaw, Director, Oppenheimer & Co. Inc., Public Finance.
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