July 2019 Muni Market Monthly Review –“The Illinois Agenda”
Once again, munis experienced steady, positive performance during the month of July. . MMA total return indices are up YTD roughly 8.3% for 15 to 30 year munis and 4.5% for five-year maturities. Muni inflows remain positive, and supply below historical levels. This (combined with a Treasury market anticipating Fed rate cuts and investors seeing only the good in muni credit news) keeps munis moving forward with price gains.
On the surface, recent credit news from Illinois does not alter our opinion about the State. Underneath the lawsuit, which we have named “The Illinois Agenda”, we see a trend that could cause some concern in muni-land. MainLine sees politics and agendas becoming more prevalent and scaring some investors away from certain issuers and bonds. Now, it is our job to take advantage of any opportunities the noise could make, while continuing to ensure our investors are in the right type of bonds.
Muni Market Review
The muni market had a good July, slightly outperforming taxables led by the seasonal supply and demand imbalance. Munis remain in demand, with additional inflows (now 29 weeks in a row) even at these low yield levels. The relative value of munis is rich from 10 years and shorter, with 15 years and longer still considered “cheap” to taxables. July highlights include:
- Muni yields were down 21 to 10 bps, with the curve steepening.
- According to MMA, Muni YTD total annualize returns range from 4.5% for five-year maturities and roughly 8.3% for 15 to 30 year maturities.
- Taxable yields were mixed, + 2 bps to -5 bps with the curve slightly flattening.
- Year-to-date, muni issuance has finally picked up and it looks like this will continue:
- 2019 is up 3.1% versus 2018.
- 2019 is down 27.7% versus the last 5 years’ average.
Credit news from Puerto Rico and Illinois has turned a bit negative for the overall muni market, but the investors have chosen to ignore it. We discuss the possible repercussions of these recent developments for munis, going forward, in this month’s credit review.
Read the full Monthly Review here.