The S&P Municipal Bond Investment Grade Index returned -1.66% in July, as rising municipal yields across nearly the entire curve offset income contributions and largely erased the index’s year-to-date gains. Tightening spreads among lower-rated credits provided a partial offset to the rate-driven decline.
Other Highlights
- Rates and Curve Dynamics: Municipal yields increased across all but the shortest maturities, with the largest impact coming from a roughly 40 bp increase in the ten-year point of the municipal spot curve
- Credit Spread Moves: Santa Clara Unified School District and Oklahoma Housing Finance Agency experienced notable spread tightening, while New York State Housing Finance Agency and Elk Grove Unified School District saw significant spread widening
- Sector and Spread: Tobacco Settlement, Resource Recovery, Housing, and Transportation sectors saw the most significant spread tightening, while the Prerefunded/ETM sector experienced spread widening
- State Performance: Alabama, Illinois, and Washington were among the top-performing states, while Texas, New York, and Massachusetts lagged due largely to their longer-duration exposure amid rising yields
- Monthly Spot Curve: The ICE U.S. Municipal AAA Noncallable spot curve’s overall level increased about 40 bp (measured at the ten-year point), although most of the rest of the curve increased slightly less than that (see figure below)
July’s performance demonstrates how rising yields can outweigh positive spread performance, with longer-duration exposure creating a meaningful headwind for municipal bond returns during the month.
Read the full report for an in-depth understanding of the contributions to the month’s performance.
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