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March 2022 Muni Market Summary

- Anfield Capital Management

Municipal Market Performance (total return basis) – Source: CreditSights as of 4/6/2022

o ICE Muni IG Index (U0A0): March returns of -3.05%, YTD returns of -6.18%

  • AA and High Yield Indices outperformed the broad index while AAA, A, and BBB Indices lagged

  • Price return for index was the worst month since March 2020, has been negative for 4 months now

o ICE Taxable Muni Index (DQTM): March returns of -5.47%, YTD returns of -9.37%


Muni Returns, Spreads, and Yields – Source: CreditSights, as of 4/8/2022

o Even though Muni yields moved sharply higher in March, Muni credit spreads tightened

  • Biggest movement was in the HY Index, which ended the month narrower by 14bps

  • YTD the HY Index has tightened by 26bps while the A Index has tightened by 21bps

o Index spreads are now tighter than they were prior to the pandemic

  • BBB and A Index ended March 38bps tighter compared to December 2019, HY Index ended 55bps tighter

o Until late March, strong retail demand priced tax-exempt yields too richly for taxable institutional investors subject to the 21% federal corporate income tax rate

  • As March ended and retail demand faded, tax-exempt yields broke through and ended cheaper than after-tax yields on comparable rated corporates

  • First week of April’s outperformance of Munis relative to corporates nearly erased the yield advantage of tax-exempts over comparably rated corporate bond after-tax yields

o The Muni ETFs with the best YTD performance are short-term or intermediate, or have a relatively low duration


Muni Demand, Supply, and Ratings – Source: CreditSights, as of 4/8/2022

o The downward bias for Muni prices was pressured further last month by a surge in net new issue supply, with net supply rising $20.6bn – the most since September 2021

o Negative Muni bond mutual flows, pointing to dwindling demand from retail investors, reduced the strongest source of support for the market

o Muni credit ratings remained mostly steady during the first quarter, with the limited movement out of A was almost completely into AA and most of the movement out of BBB was also upwards


2022 Muni Outlook – Source: CreditSights, as of 4/6/2022

o Until retail demand returns and mutual fund flows turn positive, expect tax-exempt yields to remain attractive relative to corporate

o If April’s new issue volume follows recent historically trends, supply will be down from March but net supply could still provide a headwind for the market

  • Expect the Muni market to continue to underperform in April, with demand starting to increase in May and June as redemptions increase, leading to more reinvestment demand

o Given current rates, economic and geopolitical environment, expect market conditions to remain volatile


Disclosures

Anfield Capital Management, LLC is a registered investment adviser with the SEC. This report is for informational purposes only and does not constitute advice, an offer to sell, or a solicitation of an offer to buy any securities and may not be relied upon in connection with any offer or sale of securities. The contents of this report should not be relied upon in making investment decisions. The information and statistical data contained herein have been obtained from sources that we believe to be reliable but in no way are warranted by us as to accuracy or completeness. The accompanying performance statistics are based upon historical performance and are not indicative of future performance. The types of investments discussed do not represent all the securities purchased, sold, or recommended for clients. While many of the thoughts expressed in this report are stated in a factual manner, the discussion reflects only Anfield Capital’s beliefs about the financial markets in which it invests portfolio assets following the models. The descriptions herein, are in summary form, are incomplete and do not include all the information necessary to evaluate an investment in any model. Any prior investment results or returns are presented for illustrative purposes only and are not indicative of future returns. Investments with Anfield are subject to significant risks, which include, but are not limited to, the risk of loss of principal, lack of diversification, volatility, and market disruptions. Prospective investors are referred to our Form ADV 2A for a more detailed discussion of risk factors, which can be (a) found on the SEC's Investment Adviser Public Disclosure website at: http://adviserinfo.sec.gov, or (b) provided upon request. You should not construe the contents of this report as legal, tax, investment, or other advice. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein by Anfield Capital, its employees and no liability is accepted by such persons for the accuracy of completeness of any such information or opinions. Registration as an investment adviser does not imply a certain level of skill or training and no inference to the contrary should be made.

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