The municipal market selloff intensified through midday Wednesday as President Donald Trump's sweeping tariffs against imported goods from around the globe were set to go into effect. Following Trump's announcement that tariffs against most countries had been delayed for 90 days stocks rebounded, though the effect on munis is too soon to tell.
Trump's announcement on pausing tariffs — with the exception of China, which is now facing 125% tariffs — did little to move the muni market within the hour, outside of a bit of a slowdown in bid wanted activity, said Chris Brigati, managing director and CIO at SWBC.
There has not been much of price reaction, so it looks like these large cuts will "stick around for a bit," he said.
The latest read shows municipal AAA yield curves were cut up to another 42 basis points, depending on the curve. Muni yields have risen up to nearly 100 basis points in spots since the bond market rout began.
With the midday market read of 28-42 basis point cuts, MMD's 10-year is at 3.87%-3.89% while its 30-year is at 4.82%-4.84%.
Bloomberg BVAL AAA yields rose 30 basis points and ICE Data Services saw yields rise 26-38 basis points.
Brigati noted "the delay in tariffs is a constructive and a positive thing and proves what Trump is trying to accomplish one of his main goals: to get people to the negotiating table. And it did it; his forceful and rather direct tariff threats ultimately got a lot of people to the negotiating table."
Despite the newly announced tariff reprieve, "the speed with which rates have corrected this month has brought new yield ranges into play that date back many years," said Kim Olsan, a senior fixed income portfolio manager at NewSquare Capital.
"The speed with which rates have corrected this month has brought new yield ranges into play that date back many years," said Kim Olsan, a senior fixed income portfolio manager at NewSquare Capital.
Selling pressure "has been exaggerated by intra-market dynamics such as tax-payment/syndicate settlement cash raises, as well as some unknown value attached to fear and moves into cash products," she said.
Bid wanteds soared Tuesday to $3.07 billion in par value, the
Adding to this pressure is the significant selling of exchange-traded funds, "and it seems like there are some people front running that, so it becomes self-fulfilling to some extent," said Joshua Perry, a partner, portfolio manager and municipal credit analyst at Brown Advisory.
Municipal exchange-traded funds flows in the last month register to negative $748 million, according to Bloomberg data, where the largest outflows happened in long-term funds, where the yield spike is "most impactful," Olsan said.
"At some point, the dislocation may entice a wider swath of buyers into the buyer, namely typical taxable participants," she said.
Deals continue to be postponed and moved to the day-to-day calendar.
In the negotiated market, Capital Projects Finance Authority's $130 million of Millenia Orlando Project senior living revenue bonds has been moved to the day-to-day calendar.
And in the competitive market, $419 million of GOs from Anne Arundel County, Maryland, in two series, and $161 million of higher educational facilities second program bonds from the Tennessee State School Bond Authority, both of which were set to price Wednesday but have been postponed.
However, issuers "walking away" from deals at these levels could be interpreted as a good sign, Perry noted.
If this were a fundamental liquidity crisis, like during COVID, "issuers would have to come to market and take whatever levels the market had, because they would want to be bolstering up their liquidity," he said.
But with deals being postponed and moved to the day-to-day, there's a good sign as far as the fundamentals of these issuers, according to Perry.
"As some issuers step to the sidelines, secondary stability will be dependent on capturing these investors," Olsan said.
A few trade examples show the comparative value with 4.00% and 5.00% or better yields: "1) Illinois GO 4s due 2048 traded at 5.06% from a 4.42% sale in mid-February; 2) Texas Water 5s due 2049 (call 2028) were bought at 5.05% after having changed hands at 4.10% in mid-March; [and] 3) Virginia Public Building Authority 5s due 2040 (call 2035) were sold at 4.04%, an adjustment of 74 basis points from its issue yield in late February," Olsan said.
"With respect to the 5.00% and greater yield opportunities, comparably-rated corporate bonds are trading well tighter when factoring in taxable equivalent yields," she said.
"The Texas Water 2040 trade at 5.05% (duration 8.8 years) offered a TEY of 6.40% for a 21% corporate-rate buyer, or about 115 basis points above an offer on Berkshire Hathaway 5 ¾s due 2040 (at ~5.15% with a 10.0 year duration)," Olsan said.
The Investment Company Institute reported fund flows for the week ending April 2, so these figures do not account for the recent market volatility.
ICI reported outflows of $1.15 billion following $175 million of outflows the previous week.
Exchange-traded funds saw inflows of $944 million after $312 million of inflows the week prior, per ICI data.
