Municipal Monthly Update April 2025

Key Takeaways:

• April brought extreme volatility across fixed income markets, with Treasury and municipal bonds both whipsawed by policy surprises, shifting investor sentiment, and technical pressures.
• Municipal bonds underperformed Treasuries, with yields rising over the month even as Treasury rates declined.
• Despite ongoing macro and policy risks, muni market conditions look favorable heading into May, with elevated yields and compelling valuations versus Treasuries.

MUNICIPAL BOND MARKET UPDATE

• Yields swung dramatically in April, driven by tariff announcements, questions about Fed independence and growing concerns over foreign demand for US debt.
• Ultimately, two- and five-year Treasury yields fell 28bps and 22bps, respectively, while the 10-year was down 4bps and the 30-year rose 11bps.
• Municipals experienced one of their most volatile stretches in history before ending the month with yields 10-25bps higher across the curve, underperforming Treasuries and pushing ratios to their cheapest levels in years.
• Most of the damage came during the second week of the month, a punishing stretch that saw 10-year yields surge nearly 100bps over three days, only to snap back 50bps the following morning.
• Mutual funds and ETFs came under pressure amid a flood of outflows but stabilized into month end.
• Heavy April issuance ($40B), low reinvestment flows, and tax-related selling added to muni volatility.
• Municipal credit spreads widened modestly in April, as global risk-off sentiment found its way into the tax-exempt market.
• The front end of the curve flattened modestly, with 2s10s narrowing to +42bps and 5s10s to +32bps. The back end, by contrast, slightly steepened, with 10s20s finishing at +81bps and 10s30s at +104bps.
• Looking forward, the muni market feels well positioned – a steeper curve, higher rates, and relative value ratios at cyclical peaks all suggest an attractive entry point.