Volatility remains uncharacteristically high following last week’s tariff announcement and escalating pressure from the markets and politicians to cut rates. However, last Friday, the Fed clearly stated their concerns regarding the potential for higher inflation and slower growth and has concluded it is too soon to determine the appropriate path for monetary policy. As a result, market attentions are divided between concerns of stagflation and the prospects of the fed cutting rates leading to increased volatility as the market flips back and forth. This past week has been challenging to manage from a trading perspective as the MMD municipal market index has seen strong moves in both directions with bumps of 18 to 24 bps along the yield curve last Thursday and Friday and cuts of 18 to 20 bps indicated for today.
In response to the tariff news, the municipal bond yield curve has responded with a 17 bps shift lower in a parallel fashion. In contrast, the Treasury curve continues to flatten with the policy sensitive 2-3 year portion of the curve seeing the largest movement of around 18 bps. Following the shift, municipal yields remain steep in the 8 to 11-year portion of the curve, with a slope of 33bps, and the 15 to 18-year portion of the curve, with a slope of 43 bps. The 15-18 year portion of the municipal curve continues to offer a combination of relatively steep slope and meaningful yield, allowing investors to lock-in over 92% of the yield on the 30-year muni maturity and yields around 85% of equivalent Treasury bonds.
As a result of the small declines on the long-end of the Treasury curve and the relatively strong moves in the municipal curve, muni/Treasury ratios have changed significantly. Ratios now lean more to the rich side than they did last week. Over the past month, the 10-year ratio saw the largest change and has fallen almost 7% to back below 75%. Over the past week, the 5-year ratio saw the largest change and has declined 3.6% to 70%.
Herbert J. Sims & Co. Inc. is a SEC registered broker-dealer, a member of FINRA, SIPC. The information contained herein has been prepared based upon publicly available sources believed to be reliable; however, HJ Sims does not warrant its completeness or accuracy and no independent verification has been made as to its accuracy or completeness. The information contained has been prepared and is distributed solely for informational purposes and is not a solicitation or an offer to buy or sell any security or instrument or to participate in any trading or investment strategy, and is subject to change without notice. All investments include risks. Nothing in this message or report constitutes or should be construed to be accounting, tax, investment or legal advice.
April 7, 2025 | Timothy Iltz
Volatility remains uncharacteristically high following last week’s tariff announcement and escalating pressure from the markets and politicians to cut rates. However, last Friday, the Fed clearly stated their concerns regarding the potential for higher inflation and slower growth and has concluded it is too soon to determine the appropriate path for monetary policy. As a result, market attentions are divided between concerns of stagflation and the prospects of the fed cutting rates leading to increased volatility as the market flips back and forth. This past week has been challenging to manage from a trading perspective as the MMD municipal market index has seen strong moves in both directions with bumps of 18 to 24 bps along the yield curve last Thursday and Friday and cuts of 18 to 20 bps indicated for today.
In response to the tariff news, the municipal bond yield curve has responded with a 17 bps shift lower in a parallel fashion. In contrast, the Treasury curve continues to flatten with the policy sensitive 2-3 year portion of the curve seeing the largest movement of around 18 bps. Following the shift, municipal yields remain steep in the 8 to 11-year portion of the curve, with a slope of 33bps, and the 15 to 18-year portion of the curve, with a slope of 43 bps. The 15-18 year portion of the municipal curve continues to offer a combination of relatively steep slope and meaningful yield, allowing investors to lock-in over 92% of the yield on the 30-year muni maturity and yields around 85% of equivalent Treasury bonds.
As a result of the small declines on the long-end of the Treasury curve and the relatively strong moves in the municipal curve, muni/Treasury ratios have changed significantly. Ratios now lean more to the rich side than they did last week. Over the past month, the 10-year ratio saw the largest change and has fallen almost 7% to back below 75%. Over the past week, the 5-year ratio saw the largest change and has declined 3.6% to 70%.
Herbert J. Sims & Co. Inc. is a SEC registered broker-dealer, a member of FINRA, SIPC. The information contained herein has been prepared based upon publicly available sources believed to be reliable; however, HJ Sims does not warrant its completeness or accuracy and no independent verification has been made as to its accuracy or completeness. The information contained has been prepared and is distributed solely for informational purposes and is not a solicitation or an offer to buy or sell any security or instrument or to participate in any trading or investment strategy, and is subject to change without notice. All investments include risks. Nothing in this message or report constitutes or should be construed to be accounting, tax, investment or legal advice.