Muni Monthly: December 2024

The December 2024 Muni Monthly report highlights several key trends and insights for financial advisors and portfolio managers. Muni yields increased as the Treasury yield curve steepened, driven by stronger-than-expected GDP data, prompting concerns over inflation and interest rates for 2025. Despite the volatility, the Bloomberg Municipal Bond Index ended the year with a positive return of 1.05%, outperforming Treasuries but lagging behind investment-grade credit indices. High-yield municipals delivered the strongest returns at 6.32% for the year.

Supply dynamics showed a record issuance year with $500 billion, primarily driven by tax-exempt supply. However, demand softened in December due to seasonal tax selling pressures, although mutual funds saw a net inflow of $46 billion for the year, partially offsetting significant outflows from previous years.

Municipal fundamentals remain strong, supported by robust state and local revenue collections, which reached record levels. Tax collections, including individual, corporate, and property taxes, showed healthy year-over-year growth, indicating sound municipal credit conditions.

Valuations have improved, offering attractive after-tax yield pickups compared to taxable counterparts. With the Federal Reserve expected to continue its rate-cutting cycle into 2025, investors are likely to seek the relative income opportunities available in the municipal market. The current environment suggests a favorable outlook for munis, particularly for those seeking higher income in a potentially declining rate landscape.