The municipal market extended its record-long winning streak and outpaced U.S. Treasuries in August. Strong employment data and more hawkish rhetoric from Fed officials caused markets to price in a higher probability of a September rate hike. This sparked a general rise in fixed income yields (and drop in prices), though munis found support in strong demand given the less volatile nature of the asset class.
Demand for the asset class remains both consistent and firm.
New supply of $39.1 billion represented the largest August issuance on record, up 21% from 2015 and 28% above the five-year average. The spike might be attributed to issuance being pulled forward ahead of the upcoming presidential election and potential Fed rate hike. It also appears to compensate for a historically light July, with August supply up a notable 50% from the prior month. Demand for the asset class remains both consistent and firm, with nearly $7 billion in August inflows bringing the year-to-date (YTD) total to $47.3 billion. This is an average of approximately $1.4 billion in inflows per week (up 575% year-over-year), with the majority of monies directed to long-term muni funds.
Insights and Resources