Public Finance
04/05/2024 Market Commentary
April 05, 2024
The looming April 15th tax deadline has continued to pressure the municipal market. The 10- and 30-Year MMD ended the week up by 12 and 10 basis points respectively. The increase in municipal yields over the past 2 weeks has led to higher Muni-to-UST ratios, but levels are still considered to be quite rich, especially on the short end.
On a positive note, Municipal bond volume in March increased for the third straight month (year-over-year) and ended the first quarter at just above $100 billion. This is an increase of over 25% compared to the first quarter of 2023. A surge in refundings and a spend down of accumulated federal funds (increasing the need for agencies to tap the municipal market) are among several factors that have contributed to the increase in bond volume.
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| March 28, 2024 | 2.51% | 3.68% |
| April 4, 2024 | 2.63% | 3.78% |
| Change (bps) | +12 | +10 |
Treasury yields rose this week as investors processed last Friday’s PCE inflation report and several comments made by Fed officials this week.
The February PCE report showed that prices increased 0.3% from a month ago and 2.8% on a 12-month basis. This was in line with economist expectations, but showed that overall progress on inflation could be stalling. After revisions, the PCE index for both December and January showed a rise of 2.9% year-over-year, signifying the difficulty in reaching the 2% inflation target rate. On Thursday, Fed Governor Neel Kashkari questioned whether the Fed should cut interest rates at all if inflation does not show sufficient improvement.
Despite this news, traders continue to expect 0.75% in rate cuts this year, with most still believing the Fed will begin cutting rates in June. Rounding out the week will be the March jobs report due out on Friday. Investors will be anxiously awaiting the release of the report as strong job numbers could lower the odds for a rate cut in June.
Treasury yields over the past week:
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| March 28, 2024 | 4.20% | 4.34% |
| April 4, 2024 | 4.31% | 4.47% |
| Change (bps) | +11 | +13 |
Written by Michael Garcia, Associate, Oppenheimer & Co. Inc., Public Finance.
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