"Cross currents in high yield municipal fund flows were evenly balanced, with net flows of $3 million. Miller and Persson also noted the high yield and AAA-rated municipal bond yields decreased evenly by 4 basis points on average last week. Beginning in January, we should have a better idea of whether the economy has fully recovered from the pandemic."
"We expect both municipal and Treasury rates to remain range-bond in the near term. "Municipal yields will have a hard time moving substantially lower through the end of the year, as new-issue supply will likely remain outsized," they said. Long municipal yields ended the week slightly lower, although less than long Treasuries, noted John Miller, head of municipals and Anders Persson, CIO of fixed income at Nuveen. The luster of high yield is coming down, and “recent fund flows suggest buyers have turned more cautious on the category, perhaps realizing credit spreads have gone about as far as they can,” Olsan said. Issuance totaled $12 billion per Bloomberg data, well off last year’s election-driven surge but ahead of the yearly pace of $9.7 billion.
Taxable munis were helped by a UST rally, earning 0.39% last month and sitting with a near-1% gain for the year, she said. A curve slope of about 150 basis points will hold enough lure for inquiry stretching past short-term bonds to reach hard yield or taxable equivalent yield targets. However, earlier gains out the curve have both 10- and 30-year-range bonds up 1.25% to 2% on the year. Short-term bonds ended flat in October, outperforming intermediate and long bonds by 30-40 basis points. Despite low yields, she said defensive duration allotments paid off last month.
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