Municipal Summary
Municipals continued to stumble yesterday and are off ~5-12 bps across a flatter curve so far this week. Early morning Treasury pressure was sustained through the FOMC decision and press conference, weighing on tax-exempts throughout the session. The FOMC left their benchmark rate unchanged and adjusted only small portions of their reported language; but the level of division among (seemingly more hawkish) voting members pressured the short-end. Meanwhile, the Trump administration announced the US naval blockade would be maintained, and WTI traded up +8.0% on the session, closing >$108/barrel.
As is common leading into FOMC announcements, municipals held steady on low volumes (i.e., which were ~20% below same-day averages). But sustained Treasury weakness, rising oil prices, the loss of upward price momentum and the absence of any real participant conviction amid so much fundamental uncertainty (recalling, too, the plethora of tech earnings that served as a distraction) weighed on sentiment and evaluations yesterday. MUB was also off -0.25% early in the morning, reasonably providing some price discovery for weaker mid-day reads. Looking ahead, the month of May has historically been one of the strongest of the calendar year (Figure 1 Below), assisted by strong reinvestment activity. Over the last 10 years, early May has also defined the price bottom of the calendar year, after which performance has been strong into Labor Day (Figure 2 Below). Lastly, the combination of favorable supply/demand and strong returns has reduced May's daily price volatility in recent years (Figure 3 Below).
Figure 1
Figure 2
Figure 3
Tripp Kaiser is the founder of munistreet, the executive director of the center on municipal capital markets and professor of practice at the LBJ School of Public Affairs at the University of Texas at Austin.