Taxable Municipal Bond Market Monitor

Municipal Bonds

Q2 2021 Taxable Municipal Market Overview

 

  • The big story of Q2 was the sharp reversal in the trend of long-term Treasury rates and inflation expectations, which both fell.
  •  The Fed’s consensus projection for rate hikes moved up to 2023, while its “dot plot” showed a hawkish shift, with seven members predicting a
    hike in 2022.
  • In the second quarter, short term U.S. Treasury yields increased in maturities beyond 2-years and longer. 2-Year UST yields increased by 9
    basis points while 10- year yields decreased by 30 basis points and 30-year yields decreased by 36 basis points. The ICE BofAMLCurrent 10-
    year and 30-year Treasury Indices posted negative total returns of 3.23% and 8.41% respectively.
  • For taxable municipals specifically, the Bloomberg Barclays Taxable Municipal Bond Index outperformed the 10-year but underperformed the
    30-year current US Treasury indices, returning 3.91% over the quarter. Taxable municipals however outperformed the Bloomberg Barclays (Taxexempt) municipal bond Index which returned 1.42%.
  • Taxable municipal issuance continued to be robust in the second quarter of 2021. Over the three month period supply totaled approximately
    $33.3 billion which was approximately 2% above issuance in Q1 2010. Following a record calendar year 2020, year-to-date taxable issuance now
    stands at $66 billion, roughly 10% below where the market was at the end of Q2 2020.
  • Following the trend witnessed over the last few years, demand remains very strong in the taxable municipal market with continued interest
    from domestic and non-US buyers. On a nominal yield level taxable municipals remain attractive and new proposals from the Biden
    Administration may continue to support the taxable municipal bond market.

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