Municipal Summary
A quiet start to a busy week; tax-exempts held steady across the curve while Treasury bids softened into the afternoon. The largest losses were out long, with duration risk a bit harder to take amid ongoing geopolitical conflict and uncertainty at the Fed. GDP data, an FOMC decision, March PCE, corporate earnings (from Alphabet, Amazon, Meta, Microsoft and Apple, among others) a series of central bank meetings and Treasury auctions are all on the calendar this week - and all, individually, represent key fundamentals that can nudge a "neutral" market onto a new price path. Treasury auctions in particular have had a history of setting a near-term tone for tax-exempts; and looking back to March, it has been some time since an auction result was definitively strong (Figure below). Indeed, March auctions were impacted by the conflict in Iran and weaker foreign participation; and by April, rate conditions began to stabilize. Should those conditions continue to hold this week, upcoming auctions may see a bit more relative strength. But neutral results are still the best argued here, especially with the 10yr yield still holding tightly to a ~50 bps range for a full year now. Which means a neutral perspective on the municipal market is also well argued despite decent nominal yields and strong seasonal/technical tailwinds that are being well-marketed to retail right now. Furthermore, with so many fundamental events coinciding without positive price momentum in retail/SMA areas of the curve, conviction is even more difficult.
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.