Municipal Summary
Municipals improved with global fixed-income markets yesterday (Figure 1 Below) amid speculation of a peace deal being arranged between the US and Iran; the latter driving down energy prices and boosting US equity indices to record highs. Municipal volumes were better (~20% above same-day averages), block prints were stronger (Delaware, Maryland, Wake County, NYC and others all traded through Tuesday's levels), new issue negotiated sales were well received, competitive bidding was tight (i.e., top 3 bidders for the $325M Fulton County, GA sale were within 1 bps), and short, intermediate and long ETFs were up 0.10% - 0.30% at the close. So it was a strong session led by favorable fundamentals that have continued to advance positive YTD returns.
Through yesterday, ~68% of actively managed municipal funds have outperformed their respective benchmarks YTD - above recent averages and a result of: 1) flattening term spreads throughout sections of the curve, and 2) better YTD total return on longer maturity and high-yield portfolios (Figures 2 & 3 Below). Recall, active fund managers tend to overweight duration and low-credit-quality vs. their indices. Furthermore, there hasn’t been any material selling pressure via large outflows this year; meaning funds have not been forced to liquidate positions in a down market, which would have hurt returns vs. their indices.
Figure 1, munistreetresearch.com
Figure 2, munistreetresearch.com
Figure 3, munistreetresearch.com
Tripp Kaiser is the founder of munistreet, the executive director of the center on municipal capital markets and a professor of practice at the LBJ School of Public Affairs at the University of Texas at Austin.