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.
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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