Municipal Market Performance (total return basis) – Source: CreditSights as of 7/31/2021
ICE BofAML Muni Index (U0A0): July returns of 0.75%, YTD returns of 2.12%
HY Muni Index (U0HY) outperforms for the 4th month in a row: July returns of 0.82%, YTD returns of 2.22%
Ice BofAML Taxable Muni Index (DQTM): July returns of 2.22%, YTD returns of 2.67%
Muni Spreads and Yields – Source: CreditSights, as of 7/31/2021
IG credit spreads ended July close to where they started
BBB Index ended tighter by 3bp – closing at the tightest spread since July 2007
Single-A Index is still 15bp wide of last year’s pre-pandemic low of +30, set last March
HY Index ended 3bp narrower on the month
Single-B Index tightened by 15bp to +145, still wide of last year’s pre-pandemic low of +114
CCC Index widened by 33bp
Changes in sector spreads were mixed in July
Sectors that tightened during the month: Lease, Industrial, PCR, GO and Insured Bonds
Sectors that widened during the month: Higher Education, Tobacco, Airport, Hospital, Toll Road, Multi- and Single-Family Housing
AAA benchmark yields ended lower but underperformed the move in US Treasury rates, causing Muni/Treasury yield ratios to decline slightly (making munis richer)
YTD the Muni Index leads both the UST and IG Corporate Bond Indices but lags the Corporate HY Index – though the Muni HY Index leads the Corporate equivalent
YTD price returns of several muni sectors are still negative, with the exception being the “risk-on” lower-quality tiers and the longer duration buckets
Among the IG sectors, Transportation and Airport Indices have the strongest YTD total returns
Muni Demand and Supply – Source: CreditSights, Bloomberg as of 7/31/2021
The total muni market shrank during July as issuers redeemed more bonds than they issued
July new issues volume was 27% less than June and down 24% YoY
July represented the first month since December 2020 with negative net supply
July saw the 3rd time this year that combined muni fund flows exceeded $10bn
Muni mutual funds added $8bn while muni ETFs added $2bn
At the current pace, muni ETFs could break the 1-year record for inflows during August
YTD total borrowing is 8% greater than last year’s pace
Tax-exempt issuance is up 14% while taxable issuance is now lagging 10% YoY
2021 Muni Outlook – Source: CreditSights, as of 7/31/2021
Net supply of bonds is likely to be negative again in August due to the share increase in redemptions before likely turning positive in September through November
October and November redemptions currently forecasted to be less than 2021’s monthly average
While the spread for the Airport Index widened at the end of July due to concerns over the Delta-variant, the potential for additional federal aid for airport from the still-discussed infrastructure bill should alleviate concerns
Disclosures
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