Municipal Market Update | December 2023
The municipal bond market followed November’s record rally with another month of lower yields. After several months of rising yields leading into November, the tax-exempt muni market saw the last two months of the year go lower by more than over 100 basis points (bps) across the curve. This two-month move is one of the largest rallies the municipal market history.
Major Municipal Bond Index Returns (%)
Municipal & Tax Equivalent Yields
Yields across the curve experienced a substantial downward move, however, value persists on the front end and past 10 year calls.
The ongoing yield curve inversion from 3 to 10 years suggests a barbell strategy centered around 1 to 2 year and 12+ year maturities is increasingly appealing.
Municipal/Treasury Ratios
The wider spreads between the below data points indicates a steeper municipal curve compared to Treasuries.
A & AA Revenue Credit Spreads
Credit spreads remain wider than we have seen in years, but we expect spreads to face downward pressure once the credit market regains traction. Early indications suggest the market is already showing a pattern of compressing spreads.