September update
- Municipal bonds sold off considerably in September alongside vastly rising interest rates.
- Limited demand and a seasonal transition back to net positive supply weighed on the market.
- The reset in yields and valuations provides an attractive long-term buying opportunity.
Market overview
Municipal bonds posted sharply negative total returns in September amid heightened volatility. Interest rates rose rapidly and pressured fixed income assets as the market navigated a moderate rise in inflation, continued strength in the labor market, surging oil prices, and more hawkishthan-expected message from the Federal Reserve (Fed). The asset class, dragged down by rich valuations and less favorable supply-and-demand dynamics, lagged versus comparable Treasuries. The S&P Municipal Bond Index returned -2.68%, bringing the year-to-date total return to – 1.07%. Shorter-duration (i.e., less sensitive to interest rate changes), AA-rated bonds and the corporate-backed, utility, and transportation sectors performed best.
advisorperspectives.com
by Peter Hayes, James Schwartz, Sean Carney of BlackRock, 10/17/23