February 2018 Municipal Market Returns

For the month of February, the S&P Municipal Bond Index showed a slightly improved return of -0.39% over January’s  return of -0.95%. Continued pressures in the bond markets due to forecasts of rising rates have investors searching for yield in shorter maturities and in lower quality. Returns for the shortest part of the curve dropped to near-zero giving up the previous two months’ positive performance but still out-performed the longer maturities where losses of 46 to 62 bps continued to eat away at end of year gains. A drop in volume in the high yield sector, combined with strong balance sheets in the health care and tobacco industries led those experiencing less damage in the rising rate environment.

Selected S&P Indices:

Tot Return bps/dur
Municipal Bond Index
Intermediate Index
Investment Grade Index
High Yield Index

-0.39%
-0.41%
-0.41%
0.01%

-6
-6
-7
0

S&P Municipal Bond Index Components:

Years to Maturity Tot Return bps/dur
0.000-4.999
5.000-9.999
10.000-14.999
15.000-29.999
30.000+

0.01%
-0.46%
-0.50%
-0.62%
-0.57%

0
-8
-7
-6
-5

 
Ratings Tot Return bps/dur
Aaa / AAA
Aa / AA
A / A
Baa / BBB
Ba / BB
B / B

-0.43%
-0.40%
-0.41%
-0.40%
-0.13%
-0.01%

-7
-6
-6
-6
-2
0

 
Outperforming Sectors Tot Return bps/dur
Tobacco Settlement
Prerefunded/ETM

-0.03%
-0.05%

0
-2

Underperforming Sectors Tot Return bps/dur
Tollroad
Hospital

-0.57%
-0.59%

-7
-8

The tables above show returns for several indices and for various components of the S&P Municipal Bond Index. To make returns in the tables comparable, each total return is divided by the relevant beginning-of-month effective duration, resulting in basis points per unit of duration (bps/dur).

Change during February 2018 for the Standard & Poor’s AAA Rated Non-Callable Municipal Yield Curve:

 Dan Garrett, CFA

Dan Garrett, CFA