Munis flat as traders look ahead to next year’s supply slate

Excerpt from The Bond Buyer:

Munis flat as traders look ahead to next year’s supply slate

By Chip Barnett – December 29, 2020


Municipal bonds were little changed Tuesday as the market took stock of 2020 and looked ahead to what 2021 might have in store. Yields on top-rated munis were flat across AAA scales.

As the year comes to a close, the municipal bond market is essentially “cured from a functionality standpoint,” according to John Mousseau, president and chief executive officer of Cumberland Advisors.

“Muni yields across the board are significantly lower than they were at the start of the year, and in the short end they are MUCH LOWER,” he wrote in a Tuesday market commentary. “Compared to the end of March, when the muni market had righted itself, overall yields are also much lower, particularly in the shorter end of the yield curve, reflecting the lowering of short-term interest rates by the Fed in March and the return of liquidity to the market in general and the short-term market in particular.”

“Yes, there have been some downgrades, and there will be more. But the most salient feature of high-grade municipal bonds has shone through in 2020, and that is the fact that municipal issuers enjoy a monopoly on taxing power and the provision of essential services,”Mousseau said. “And as we have seen in this past year, the larger infrastructure-type issuers enjoy broad institutional support from both the investing public and Congress. And just as important, even issuers with structural problems, such as New Jersey and Illinois, still have broad municipal market access, albeit at higher yields than the market.”

But he noted that municipalities across the country still needed some help.

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