Muni Market’s Performance Wilts in Worst Month Since February

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US state and city debt is poised for its worst month since February, with yields not far below multiyear highs. As the municipal market heads into a historically weak period, the worry is that it’s still not attractive enough to lure buyers.

Munis have declined about 1.5% in August through Wednesday, on track for the grimmest performance since a 2.3% slide in February, according to Bloomberg index data. Fixed-income assets have declined broadly this month with the Federal Reserve signaling that it may keep hiking interest rates to muffle a still-robust economy.

“Munis are not cheap enough yet,” the senior US municipals strategist said in an interview. Treasuries, or “even single- or double-A corporate rates, they’re much more attractive. They’re much larger markets and have a lot more liquidity.” With volatility in rates likely to be more muted going forward, it points to a better setup for reinvestment flows into fixed income, BI’s Kazatsky and colleague Karen Altamirano wrote in a research report this week. Nonetheless, they still anticipate flat muni returns in September, in part as supply likely outpaces demand.However, Eve Lando, portfolio manager at Thornburg Investment Management, sees promise.

 

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