The S&P Municipal Bond Investment Grade Index returned -0.083% in August, as the effect of rising long-term municipal bond yields offset positive contributions from income and falling short-term yields. Despite the monthly decline, the index’s return remained positive year-to-date, supported by coupon income and selective areas of spread tightening.
Other Highlights
- Rates and Curve Dynamics: Municipal yields steepened modestly in August as short- and intermediate-term yields declined while long-term yields rose, a net negative effect for the index
- Credit Names with Spread Moves: Denver Public Schools, Utah Housing Corporation, and Bexar County saw notable spread tightening, while University of Rochester & Related Entities, University of Houston System, and the State of California experienced meaningful spread widening
- Sector and Spread: Tobacco Settlement, Prerefunded/ETM, and Housing sectors benefited from spread tightening, while State GO, Tax-Supported (Excl. GOs), and Resource Recovery sectors faced spread widening
- State Performance: Alabama, Connecticut, Georgia, and New Jersey had particularly strong statewide returns, while Arkansas underperformed due to its longer duration profile and weakness in its IDR/PCR sector
- Monthly Spot Curve: The ICE U.S. Municipal AAA Noncallable spot curve increased approximately 4.6 basis points at the ten-year maturity while steepening (see figure)
August’s performance highlights the importance of duration positioning in a steepening yield curve environment, with shorter-duration securities outperforming as long-term yields moved higher.
Read the full report for an in-depth understanding of the contributions to the month’s performance.
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