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Municipal market insight

Munis gain as stocks wane

March 6, 2020

Monthly update

  • Strong demand for high quality assets pushed muni prices higher in February.
  • Municipal mutual funds have notched 60 consecutive weeks of inflows.
  • Volatility keeps munis in favor, but after their swift rally, some caution is warranted.

Market overview

Coronavirus fears dominated the market in February, pushing interest rates to all-time lows. (Bond prices rise as interest rates fall.) The S&P Municipal Bond Index gained 1.21% for the month, bringing year-to-date performance to 2.86%. Given the high-quality nature of the asset class, municipal credit spreads held in well amid elevated volatility, particularly compared to the significant spread widening in other asset classes.

Municipal market technicals turned less favorable in February. A continued stream of taxable muni bond issuance and a large refunding of Buckeye Tobacco Settlement Financing Authority debt contributed to an atypical 35% month-over-month increase in supply. Totaling $39.9 billion — the highest level on record for the month of February — supply was ultimately well absorbed as demand remained firm. Municipal mutual funds extended their streak to 60 consecutive weeks of inflows. Even at low absolute rates, investors continued to value the asset class for its unique characteristics: high credit quality, lower overall volatility, and the ability to diversify equity risk.


Market volatility is likely to remain elevated as the full impact of the coronavirus is realized in the United States. However, the swiftness and magnitude of the recent muni rally may warrant a bit of caution, particularly amid a backdrop of an otherwise solid domestic economy. Segments of the transportation, project finance and healthcare sectors are likely to experience some pressure from potential long-term implications of the coronavirus.


We have moved to a short duration stance (i.e., taking less interest rate risk) on municipal bonds via a barbell yield curve strategy with concentrations in maturities of 0-5 years and 20 years+. We hold a favorable view on credit and prefer revenue bonds, lower-rated investment grade credits, and issues in high tax states.

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Peter Hayes
Head of Municipal Bonds
Peter Hayes, Managing Director, is Head of the Municipal Group within BlackRock's Global Fixed Income group and a member of the Global Fixed Income Executive Committee. ...
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Sean Carney
Head of Municipal Strategy, BlackRock Investment Strategy Team
Sean Carney, Managing Director and Head of Municipal Strategy and Primary Markets team within BlackRock's Global Fixed Income Group. He is also a member of the firm's ...
James Schwartz, CFA
Head Credit Research Analyst, Municipal Credit Research
Jim Schwartz, CFA, Managing Director, is Head of Municipal Credit Research within BlackRock's Global Fixed Income group. He is a member of BlackRock's Municipal Bond ...
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Strategic Municipal Opportunities Fund
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New Jersey Municipal Fund
Pennsylvania Municipal Fund

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