Municipal Market Volatility and Liquidity Amid COVID-19 (March 25, 2020)

Dexter Torres and Kenneth Potts
Dexter Torres and Kenneth Potts
  • Municipals rallied on Tuesday as Fed measures and stimulus hopes, combined with cross-over buyers showing a willingness to engage at higher gross yields, led to better buying across the curve.
  • The short-end, which had been dramatically impacted over the last week and a half due to liquidations in order to meet cash needs, was well supported today and led the charge to lower yields.
  • Pre-refunded levels are settling in and around the 2.30% range which is 10-20 lower than where they were trading yesterday. We saw more than a handful being executed in the 2.25 range.
  • VRDN rates which peaked around 9% in some cases last week, have retreated
  • Fund flows last week (3/16 – 3/20), as reported by EPFR, saw $10 billion in outflows.
  • In the backdrop, all three major US stock indices were higher as Wall Street bet on Washington’s proposed $2 trillion virus stimulus package coming to fruition. The risk-on attitude weighed on Treasuries throughout the day, but the Fed’s buying activity helped to limit the overall damage.
Maturity Muni GM AAA Treasury
Today’s Closing Day Change
1 2.26 -0.25 0.18
2 2.27 -0.25 0.36
3 2.28 -0.25 0.40
4 2.28 -0.25 0.45
5 2.33 -0.23 0.48
6 2.40 -0.20 0.60
7 2.44 -0.20 0.72
8 2.49 -0.20 0.76
9 2.53 -0.20 0.79
10 2.59 -0.20 0.83

Source: Bloomberg, as of March 24, 2020

Below is a snapshot of our Investment Company Strategy (ICS) as of yesterday’s close:

  Discounts Dividend Yield
Municipal ICS 14.89% 5.28%

Source: Fiera Capital as of 3/24/20. Past performance is no guarantee of future results. The current allocation is a pro forma calculation that is based on the current holdings and weightings of the strategy and does not represent performance for the composite or a client’s account.

Kenneth Potts
Senior Vice President, Portfolio Manager

Dexter Torres, CFA
Senior Vice President, Portfolio Manager, Head of Trading