Municipals ended weaker Friday with triple-A benchmark curves rising the most in a week since COVID-19 disrupted all markets in March and April of last year.
Muni yields rose another five basis points on the 10- and 30-year Friday, bringing the total cuts to scales to 18 and 17 basis points, respectively, from Tuesday as the asset class moved closer to U.S. Treasury movements after lagging weakness in taxables since the start of the year. Treasury yields hit 1.35% in 10-years and 2.15% in 30 after news of stimulus out of Washington gaining ground.
“In the past several days, tax-exempts have finally started to react, and while it remains to be seen if the adjustment will be minor or a bigger move, an overall defensive portfolio stance is warranted,” said Mikhail Foux, municipal strategist at Barclays (BCS). “At the current extremely low ratios, one could consider whether to buy extremely rich high-quality tax-exempts or simply purchase Treasuries instead, which even accounting for the tax-exemption make more sense, especially for short and medium-dated bonds.”
Author(s): Christine Albano
Publication Date: 19 February 2021
Publication Site: Fidelity Fixed Income