Municipal Monthly Update March 2025

Monthly Update | March 2025

Key Takeaways:

  • Munis posted negative returns in March, weighed down by a heavy supply calendar and weak rollover demand.
  • Underperformance versus to Treasury’s pushed relative value ratios to levels not seen since 2022.
  • The front-end of the muni curve steepened, increasing prospects for roll down.
  • Credit quality remains strong with muni issuers well prepared to navigate potential policy shifts.

MUNICIPAL BOND MARKET UPDATE

  • Treasury yields were mixed in March, with the curve steepening to its widest point in three years.
  • Two- and five-year yields fell 10bps and 6bps, while the 10-year was unchanged and 30-year yields rose 8bps.
  • The front half of the muni curve steepened with 2s/10s widening to +58bps, more than double where it began the year.
  • March supply topped $41 billion, pushing YTD issuance 15% ahead of last year’s record pace.
  • Weak rollover demand and tax-related selling amplified pressure on valuations.
  • Credit spreads were mostly unchanged, though New York names underperformed due to supply overhang.
  • Trading emphasized rotation out of short-call structures into intermediate maturities offering more yield and roll.
  • Portfolio duration extended to 6.4 years, the longest level since 2013.
  • Tax-equivalent yields remain compelling as we enter April, but a building forward calendar, recent fund outflows, and heightened uncertainty bear watching.
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Disclosures

All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information. This represents the views and opinions of GW&K and does not constitute investment advice, nor should it be considered predictive of any future market performance.

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