March 2018 Municipal Market Returns

For March, the S&P Municipal Bond Index showed an improved return of 0.42% over February’s return of -0.39%. Underperformance at the short end of the municipal bond curve may be attributed to the anticipation of, and in response to, the Federal Reserve’s rate hike. Also, the wave of advance refundings completed at year end, increased the supply of pre-refunded bonds. Long term munis benefited from a paucity of higher yield paper and continuing, albeit lessened, demand from insurers. While tax reform has left P&C’s less incented to hold tax-exempt bonds, the spread between yields on municipals and corporates has been close to nil. This scenario may well change due to anticipated refinancing of tobacco settlement bonds.

Selected S&P Indices:

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

0.42%
0.29%
0.37%
1.28%

6
5
6
16

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+

-0.02%
0.21%
0.60%
0.80%
1.08%

-1
4
8
8
8

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

0.34%
0.37%
0.40%
0.47%
0.55%
1.62%

6
6
6
7
8
34

 
Outperforming Sectors Tot Return bps/dur
Tobacco Settlement
Multi-family

1.71%
0.73%

24
10

Underperforming Sectors Tot Return bps/dur
Airport
Prerefunded/ETM

0.24%
-0.02%

4
-1

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

 Dan Garrett, CFA

Dan Garrett, CFA