Taxable Municipals: Market Review and Outlook

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Taxable Municipals: Market Review and Outlook

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Beth Moreau
SEP 30, 2021

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Taxable Municipals navigated calmly and steadily through the rate volatility and the Fed policy uncertainty in the third quarter. The OAS on the Bloomberg U.S. Aggregate-eligible Taxable Municipal Index drifted within a narrow range of five basis points and ended the quarter two basis points wider at 87 basis points—just two basis points off the year to date and historical tights of 85 basis points. For the quarter, the index posted a total return of 0.40% and an excess return of 0.17% relative to duration-matched Treasuries. This compares to an excess return of -0.15% for the Bloomberg U.S. Corporate Index. Revenue bonds outperformed GOs, with excess returns of 0.29% and -0.07%, respectively.i The steady performance in Taxable Municipals can be attributed to a combination of factors that include the constructive credit outlook for Municipals, modest issuance of Taxable Municipals ($33.6 billion in the quarter including municipal issuers with corporate CUSIPs),i and the strong demand for high quality long duration assets in the global reach for yield.