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.