The S&P Municipal Bond Investment Grade Index returned -3.867% in September, as sharply higher municipal yields drove broad-based price declines and pushed year-to-date returns into negative territory. Municipal yields rose significantly more than Treasury yields during the month, with short-term yields increasing nearly 100 basis points, the largest single-month increase in the 23-year history of the ICE U.S. Municipal AAA Noncallable yield curve.
Other Highlights
- Rates and Curve Dynamics: Municipal yields moved sharply higher in September, while the yield curve flattened slightly as shorter maturities experienced larger yield increases than longer maturities.
- Credit Names with Spread Moves: The State of Washington, State of Massachusetts, and State of New York saw notable spread tightening, while New York State Housing Finance Agency Affordable Housing Revenue Bonds, CommonSpirit Health, and Virginia Housing Development Authority experienced meaningful spread widening.
- Sector and Spread: Tobacco Settlement, Public Power, and Resource Recovery sectors benefited from spread tightening, while the Prerefunded/ETM sector experienced spread widening.
- State Performance: Washington, Alabama, Georgia, and Ohio led state returns, with states with shorter average durations generally underperforming in the rising-rate environment.
- Monthly Spot Curve: The ICE U.S. Municipal AAA Noncallable spot curve increased approximately 70 basis points at the ten-year maturity, reflecting substantial upward pressure on municipal rates during the month (see figure).
September’s performance highlights the importance of duration in a rapidly rising rate environment, with shorter-duration securities outperforming as municipal yields experienced historic increases.
Read the full report for an in-depth understanding of the contributions to the month’s performance.
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