Municipal Market Overview
The municipal market went 12 for 12 in 2014, posting a positive December to round out a perfect year. Performance for the month was buoyed by falling rates (and rising bond prices) as the Fed maintained its accommodative stance and the global economy remained fragile. The market’s performance defied even the most optimistic projections for the year.
December, which tends to be a quiet month as supply winds down and activity slows toward year-end, was anything but typical in 2014. Issuance of $37.8 billion was quite robust and outpaced both the five- and 10-year averages by nearly 20%. The vast majority was refundings as issuers took advantage of low rates. Demand also bucked the seasonal trends, remaining strong thanks in part to healthy market momentum. Municipal mutual funds saw inflows in 50 out of 52 weeks, bringing the annual total to $27 billion. Notably, while supply in 2014 was nearly identical to 2013, it was heavily weighted toward year-end. The question is whether that trend will continue into 2015.
Consistent with recent patterns, longer-duration securities and higher-risk sectors led performance in December. Oil prices were the topic du jour, and while lower energy prices benefit consumers, we are monitoring those states whose economies rely heavily on revenues from oil production (e.g., Alaska, Wyoming, the Dakotas and, to a lesser extent, Texas and California).