Municipal Market Quarterly Q4 2022: Saving Their Best For Last – High Grade Municipals End The Year On A High Note

Municipals had a scary start to the quarter as yields hit their highest levels of the year on Halloween. The asset class did however have a historically strong November as investors feasted on munis leading up to Thanksgiving. December was more muted as activity slowed during the holidays. Through it all, the tax-exempt muni market, as represented by the Bloomberg Municipal Bond Index, returned 4.10% over the three months ending December 31st , 2022 — the best quarterly return since 2009. The Bloomberg High Yield and Taxable Municipal Indices returned 3.48% and 1.45%, respectively, during the fourth quarter of 2022.

Treasury yields signed up for one more rollercoaster ride during the 4 th quarter — but ultimately finished slightly higher on average. Yields initially rose as inflation data came in above expectations and the Fed maintained its restrictive policy rhetoric. Conversely, yields plummeted when further inflation data showed consecutive months of lower-than-expected readings, and the Fed signaled its intention to slow the pace of rate increases.

Municipals outperformed Treasuries as benchmark muni yields fell across the curve: Bloomberg 3yr Index at 2.94% (47 basis points lower), Bloomberg 1-10 Index at 3.01% (54 basis points lower), and the Bloomberg Muni Agg Index at 3.55% (49 basis points lower).

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