FINSUM + Magnifi: Surging Muni Demand Threatens Returns

(February 2021)

Municipal bond market returns remain low, but nonetheless investors seem willing to keep demanding low yield munis. This rise in demand has pushed the 10-year muni-treasury spread to -50 basis points. This comes after last March when muni’s were not only higher than the 10-year treasury but 300% of the 10-year t-bill. Part of what is driving the municipal bond market so low is a $12.5 billion dollar influx in muni mutual funds in January alone. The supply side of the market is also affecting rates as issuance slowed in the market. Munis usually provide tax relief for many investors but members of BlackRock’s municipal group said the share of taxable muni’s “remained elevated” at 29%. The group also expects these trends to continue in this segment of the bond market.

(Chicago)


FINSUM + Magnifi: Despite headlines recently, the municipal bond market is just another indicator that investors are bearish on inflation as they continue to flock to assets that bear inflation risk.



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