Muni Monthly: July 2024

In July 2024, the municipal market experienced a rally, with the Bloomberg Municipal Bond Index achieving a return of 0.91%, resulting in positive year-to-date (YTD) performance. This rally was driven by weaker economic data that lowered interest rates, notably benefiting lower-quality municipals, as evidenced by the 1.10% return of the Bloomberg High Yield Municipal Bond Index.

Despite this performance, municipals lagged behind investment-grade fixed-income markets due to weaker supply dynamics. Municipal supply reached $39 billion in July, a 40% year-over-year increase, bringing total issuance to $280 billion for the year, with projections suggesting a potential record of $440 billion by year-end.

Investor interest grew, highlighted by $5 billion in fund inflows, predominantly into long-term and high-yield categories. Municipal fundamentals remained strong, with upgrades surpassing downgrades by over three times by par value, particularly in the Transportation and General Obligation sectors.

Notably, defaults have decreased by approximately 35%. Valuations improved, providing significant after-tax yield advantages for municipal bonds, with the taxable-equivalent yield-to-worst exceeding 6% for top-bracket investors, and a pickup of over 180 basis points compared to taxable counterparts, indicating attractive investment opportunities.