After the Federal Reserve revealed it will allow inflation to push slightly above its target range, municipal bonds and related ETFs strengthened, with muni yields slipping down by the most in three weeks.
On Thursday, iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) rose 0.2%, SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (NYSEArca: TFI) gained 0.2% and VanEck Vectors AMT-Free Intermediate Municipal Index ETF (NYSEArca: ITM) increased 0.3%.
The Federal Reserve held interest rates steady Wednesday and acknowledged rising inflationary pressures, but officials gave little indication that they were worried about the sudden escalation in prices or the slowdown in economic growth, the New York Times reported.
The Fed’s decision had been widely expected. Fed officials did not hint at any attempts to hike rates faster than previously anticipated.
The muni market has rebounded slightly since its late April lows. Over the past week, MUB advanced 0.5%, TFI was 0.4% higher and ITM was up 0.6%.
Meanwhile, yields on top-rated 10-year municipal bonds dipped 3 basis points to 2.47% while those on some longer-dated securities experienced a 4 basis point drop, Bloomberg reports. Bond yields and bond prices have an inverse relationship, so a falling yield corresponds with rising prices.
Muni Debt Yields Strengthen
The move also comes after municipal debt yields strengthened relative to Treasuries last week, which has made muni debt more attractive in comparison.
“Munis underperformed across the curve and looked cheaper,” Peter Block, managing director at Ramirez & Co., told Bloomberg. “Supply is low this week, there’s a lot of money on the sidelines and we looked attractive.”
John Donaldson, director of fixed income at the Haverford Trust Co., argued that demand for tax-exempt income remains solid while supply remains muted, The Bond Buyer reports.
“The municipal market continues to feel the impact from so much of the new issue supply being rushed into the fourth quarter of 2017,” Donaldson told The Bond Buyer. “We continue to see better value from new issue pricing as there is little selling pressure in the secondary market.”
For more information on the munis market, visit our municipal bonds category.