Municipal bonds lost ground in what was an atypical April. The performance was reasonable, however, given the crosscurrents affecting the market. Increased rate volatility coupled with elevated supply of muni bonds and seasonally weak demand all contributed to the weaker tone. While the Fed could easily be cited as the culprit in the rate volatility, the more likely offenders came in the form of higher inflation expectations in the U.S., a stabilizing dollar and oil price, and an upturn in European interest rates. Markets were reacting to mixed economic signals.
We saw $37.8 billion in muni bonds issued in April, which was well above historical norms for the month (the five- and 10-year averages being $31 billion and $33 billion, respectively). Supply is now up 58% year-over-year. Notably, we saw a meaningful uptick in new-money issuance in April. 42% of April’s issuance was new money rather than refundings, which had represented the preponderance of supply in the first three months. Demand, meanwhile, was weak leading into tax time and followed by a recovery after April 15. Most of the outflows were in municipal money funds and not the core of the muni market. For the month, munis saw $691 million in inflows, bringing the year-to-date (YTD) figure to roughly $10.1 billion.