Public Finance
05/17/2024 Market Commentary
May 17, 2024
Treasuries rallied this week, whereas municipal bond yields saw little movement. April’s market-friendly CPI report was released, causing Treasury yields to drop by 12 basis points along the curve. Municipal bond yields did not see the same drop in yields. While municipals often track Treasuries, municipal bonds are still guided by their own set of technicals. In this case, the continued influx of supply of municipal bonds coming to market, as well as historically low Muni-Treasury ratios, held municipal yields in place despite the rally in Treasuries.
Outflows returned to municipal bond mutual funds, with investors withdrawing $548 million this week. It is worth pointing out that high-yield funds did see inflows of $125 million, as investors are seeking out higher yields. .
Tax-exempt yields over the past week
| 10-Year MMD | 30-Year MMD | |
|---|---|---|
| May 10, 2024 | 2.71% | 3.77% |
| May 16, 2024 | 2.75% | 3.76% |
| Change (bps) | +4 | -1 |
April’s CPI report showed that prices rose 0.3% over the past month, less than the expected 0.4%. Year-over-year, prices have increased by 3.4%, and core inflation has increased by 3.6%. The report was seen favorably by the market. With prices coming under more control, investors are counting on at least one rate cut this year, and potentially two rate cuts if CPI figures continue to trend downwards. The report has increased the odds of a rate cut in September, with the market factoring in a 66% chance of a rate cut at or before the September FOMC meeting. Treasury yields fell as a result.
Treasury yields over the past week:
| 10-Year Treasury | 30-Year Treasury | |
|---|---|---|
| May 10, 2024 | 4.50% | 4.64% |
| May 16, 2024 | 4.38% | 4.52% |
| Change (bps) | -12 | -12 |
Written by Dan Shaw, Director, Oppenheimer & Co. Inc., Public Finance.
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