The municipal bond market has experienced a surge in activity as state and local governments ramped up issuance. In the first four months of 2024, muni new issue volume hit $142.8 billion – the highest level for that period in almost a decade.
This wave of new supply comes as the need to fund infrastructure, capital projects, and other initiatives has outweighed issuer concerns over higher interest rates. The year's torrid pace marks a sharp rebound from a 20% decline in new issues for 2022 issuance and flat 2023.
The heavy primary market volume sets up potential challenges and opportunities for investors navigating heightened supply alongside an evolving rate environment.
Amidst the surge in muni issuance and U.S. Treasury market volatility, muni yields have risen considerably across the curve.
While the table above reflects yields for the highest credit quality AAA bonds, Riverbend primarily invests in bonds with slightly lower yet strong AA/A ratings. These purchases tend to deliver taxable equivalent yields in the 5.50%-6.50%+ range with short to intermediate duration.
The current market environment offers an attractive entry point for investors looking for the capital preservation and stable tax exempt income characteristics that munis provide.