Author: Just Summit Editorial Team
Source: Franklin Templeton
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In August 2024, the investment-grade municipal market experienced positive momentum, with the Bloomberg Municipal Bond Index returning 0.79%, lifting year-to-date returns to 1.30%. This uptick was supported by weaker economic data and dovish commentary from the Federal Reserve, indicating a potential rate cut in September.
Notably, record municipal supply, totaling $49 billion, impacted performance, as munis underperformed relative to other high-grade fixed-income sectors. Year-to-date new-issue supply has increased 37% year-over-year to $330 billion.
However, demand improved, with approximately $11 billion of year-to-date inflows into municipal mutual funds. Fundamentals remain strong, with state and local revenue collections near record levels and payroll growth exceeding national averages.
Despite elevated supply conditions, municipals offer an attractive relative value, marked by an average yield-to-worst of 3.45%, which translates to a taxable-equivalent yield of 6.28% for high-income investors, outperforming historic averages in various credit segments.
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