Municipal Market Update | As of April 11 2025
Summary
Putting out a monthly piece reviewing March after what we have seen to start April didn’t seem to make much sense. So, we present a special inter-month Municipal Update. March was a challenging month for municipal bonds as they had their 3rd worst month in the last 20 years. The first two weeks of course brought the tariff announcement and a rise in rates and volatility across asset classes. While municipal bonds would seem to be more uniquely immune to global trade than most assets, they are unfortunately more uniquely challenged by liquidity due to their underlying structure. This last week has brought some of the largest moves we have seen both up and down in yields. We concluded the month to date yield moving up 40-50bps but would be remiss in not pointing out this included a 50bp down move in yields Thursday as the pause was announced, which is the single largest move we have seen in our careers.
These large gap moves are things we have seen around periods of stress, as Covid and the 2018 Taper Tantrum come to mind. While it is too early to confidently give a diagnosis to what is causing such dramatic swings, early indications point to the prevalence of ETFs in the municipal market. We have spoken to this point so many times over the years without seeing the effects that it possibly started to seem we were the boy who cried wolf. Municipal markets do not have thousands of bonds with active bid/ask markets from a wide variety of market markets. Every bond is bought/sold through a process of price discovery, generally through a bid wanted process. To overlay a market such as this with a vehicle that needs to buy hundreds of millions of dollars intraday and then sell hundreds of millions the next day has never made sense. While they still make up a tiny amount of the total assets in the municipal market, these vehicles are so much more active from a trading perspective that it can introduce significantly more volatility during periods of stress. The analogy of the tail wagging the dog comes to mind. However, these moves can be self-reinforcing in both directions, as highly volatility and negative or positive moves can attract higher inflows/outflows for the rest of the market.
Certainly, more to come and we do not anticipate volatility to slow over the near term. The opposite of ETF intraday trading is the average municipal buy and hold investor. We have seen tax exempt rates rise to historical levels on a number of relative valuation metrics. For the general municipal investor this can present an opportunity to lock in tax exempt income streams that we have not seen for decades. While there are several challenges and headwinds that municipals will continue to face (tax changes, federal spending/cuts), we want to make sure we are highlighting current levels for our clients.
Major Municipal Bond Index (%)
| Yield to Worst | Tax Adjusted Yield to Worst (40% Tax Rate) | Duration (years) | YTD Return | |
|---|---|---|---|---|
| 1 Year (1-2) Bloomberg Municipal Bond | 3.43 | 5.71 | 1.27 | 0.50 |
| 5 Year (4-6) Bloomberg Municipal Bond | 3.74 | 6.23 | 3.71 | -0.69 |
| 1-15 Year Bloomberg Municipal Bond Index | 3.97 | 6.61 | 4.97 | -1.59 |
| Bloomberg Taxable Muni US AGG | 4.86 | 6.02 | 1.06 |
Municipal & Tax Equivalent Yields (%)
We continue to see the long end of the curve steepen. SMA buyers remain the persistent buyers inside 15 years but there is spotty support at the long end of the curve, even at significantly more attractive ratios.
Ratios have been more appealing but may still have some way to go. We do not know when tax change headlines will ramp up but they are certainly will at some point.
| Treasuries | Industrials (A) | Muni AA Revenue | AA Revenue Muni at 40% Tax Rate | Muni A Revenue | A Revenue Muni at 40% Tax Rate | |
|---|---|---|---|---|---|---|
| 1Y | 4.03 | 4.50 | 3.38 | 5.64 | 3.29 | 5.48 |
| 3Y | 3.89 | 4.52 | 3.50 | 5.83 | 3.50 | 5.83 |
| 5Y | 3.95 | 4.78 | 3.59 | 5.99 | 3.70 | 6.16 |
| 7Y | 4.08 | 5.00 | 3.74 | 6.23 | 3.90 | 6.49 |
| 9Y | 4.17 | 5.15 | 3.86 | 6.43 | 4.03 | 6.72 |
| 10Y | 4.21 | 5.24 | 3.92 | 6.53 | 4.08 | 6.81 |
| 15Y | 4.40 | 5.60 | 4.33 | 7.22 | 4.45 | 7.42 |
| 20Y | 4.60 | 5.84 | 4.69 | 7.82 | 4.82 | 8.04 |
| 25Y | 4.59 | 5.85 | 4.89 | 8.15 | 5.04 | 8.39 |
| 30Y | 4.57 | 5.87 | 4.94 | 8.24 | 5.12 | 8.53 |
SBH Municipal Fixed Income Platform
Source: All data from Bloomberg as of 4/11/25
A basis point is a standard measure for interest rates and other percentages in finance. This update provides an overview of certain broad-based Fixed Income benchmarks and does not include performance of the Segall Bryant & Hamill Fixed Income styles. Past performance cannot guarantee future results. All investments involve risk, including the possible loss of capital. An investor cannot invest directly in an index. All opinions expressed in this material are solely the opinions of Segall Bryant & Hamill. You should not treat any opinion expressed as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of the manager’s opinions. The opinions expressed are based upon information the manager considers reliable, but completeness or accuracy is not warranted, and it should not be relied upon as such. Market conditions are subject to change at any time, and no forecast can be guaranteed. Any and all information perceived from this material does not constitute financial, legal, tax or other professional advice and is not intended as a substitute for consultation with a qualified professional. The manager’s statements and opinions are subject to change without notice, and Segall Bryant & Hamill is not under any obligation to update or correct any information provided in this material.
The Bloomberg 1 Year (1-2) Municipal Bond Index measures the performance of municipal bonds with time to maturity of more than one year and less than two years. The Bloomberg 5 Year (4-6) Municipal Bond Index measures the performance of municipal bonds with time to maturity of more than four year and less than six years. The Bloomberg U.S. 1-15 Year Municipal Bond Index measures the performance of USD-denominated long-term, tax-exempt bond market with maturities of 1-15 years. The Bloomberg Taxable U.S. Aggregate Bond Index is a broad-based fixed-income index used by bond traders. An investor cannot invest directly in an index. Yield to Worst is the lowest potential bond yield received without the issuer defaulting; it assumes the worst-case scenario, or earliest redemption possible under terms of the bond. Duration is a calculation of the average life of a bond (or portfolio of bonds) that is a useful measure of the bond's price sensitivity to interest rate changes. The higher the duration number, the greater the risk and reward potential of the bond.
The funds of the Segall Bryant & Hamill Trust are distributed by Ultimus Fund Distributors, LLC. Separately managed accounts are not distributed by Ultimus Fund Distributors, LLC. An investor should consider investment objectives, risks, charges and expenses of the Fund(s) carefully before investing. To obtain the prospectus that contains this and other information about the Fund(s) please call (800) 392-2673 or visit us online at www.sbhfunds.com. Please read the prospectus carefully before investing. An investment in the Funds involves risk, including possible loss of principal.
