A Municipal Trader’s Perspective

The municipal market has been on fire over the last month, outperforming treasuries. As you can see in the two charts below, in the last 5 weeks, the 1-year Treasury yield has declined 26 basis points and 15-year yield is off 73 basis points, while tax-free municipal yields have dropped anywhere from 87-117 basis points, in the same time frame.

Generic AA Municipal Yield Curve comparison on 11/1/23 vs 12/6/23

On the trading desk, we continue to be bombarded with bids wanted.  The rally has given investors an opportunity to take advantage of the strong bidding across the curve as year-end tax loss swaps make a comeback.  Another factor assisting the strength in the municipal market is the lack of new issues.  The issuance seems to be winding down for the year, so technical factors should be favorable for the market to continue to perform or at least hold steady through year end.  But if this year has taught us anything it’s that volatility can spike at any time, given a shifting inflation outlook.  Let us know if we can review your holdings for possible sale candidates that might attract strong bids – low take-out yields, at low ratios to the Treasury equivalent yields.  They might look better than you think.