Monthly Municipal Market Update, May 2021

Figure 1 is a market snapshot table displaying yield and spread data as of 31 May 2021 for municipal bond markets and U.S. Treasury markets in maturities of 2, 5, 10, and 30 years. It also displays year-to-date data on municipal market issuance, fund flows, and index returns. Key takeaways are discussed in the copy within the article.Image Pop Up

May Month in Review

U.S. markets experienced a tug of war through May – on one side, continued vaccination distribution efforts and reopenings propelled rapid economic recovery, while on the other side, concerns over inflation provided headwinds. Large-cap blue chips generally closed the month in positive territory, while the tech-heavy Nasdaq Composite logged declines.Footnote1 After a similarly volatile month, U.S. Treasury yields closed the month flat at the 20-year tenor, while down one to six basis points (bps) across the remainder of the curve.Footnote2

The municipal bond yield curve flattened slightly in May. Yields at tenors inside of 10 years generally increased – with the exception of the one-year tenor, which experienced a one basis point decline in yield – while yields at tenors beyond 10 years decreased. The 10-year tenor of the AAA Municipal Market Data (MMD) curve closed the month at 0.99%, identical to April’s final print.Footnote3 With demand for municipals remaining firm even in the face of rich AAA valuations, municipal fund inflows are on pace for a record year (+$49.7 billion year-to-date).Footnote4