Municipal Market Performance (total return basis) – Source: CreditSights as of 9/30/2021
ICE BofAML Muni Index (U0A0): September returns of -0.76%, YTD returns of 0.98%
HY Muni Index (U0HY) outperforms for the 6th month in a row: Sep returns of -0.67%, YTD returns of 5.2%
Ice BofAML Taxable Muni Index (DQTM): September returns of -1.65%, YTD returns of 0.77%
Muni Returns, Spreads, and Yields – Source: CreditSights, as of 10/4/2021
Yield to Worst (YTW) for the Muni index rose from 1.01% at the end of August to 1.16% at the end of September
Price return for Muni index fell 1.1%, marking the 3rd time this year the index had a negative price return
Excluding only the Municipal Pollution Control Revenue Bond Index, YTD total returns are still positive for the rest of the observable Muni universe
Recent market weakness has pushed YTD price returns for nearly all sector indices into negative territory
Price returns for BBB and HY indices still positive due to the cushion created from strong outperformance earlier in the year
As for coupon rate, following their lead up earlier in the year, zero coupon bonds are now leading the way down
Following two months of significant declines, the composite YTD returns for zeroes is still positive
Muni Demand and Supply – Source: CreditSights, Bloomberg as of 10/4/2021
Total volume on Thursday, September 30th was the heaviest of the year as customer buy trades continued to outweigh sells
Last time the par amount of sells exceeded buys was in December 2020
Total par amount of customer buy trades exceeded sell trades during the final week of the month by an average of $1.9bn per day, the highest in 6 weeks
September’s new issue volume was down 18% vs. September last year and 1% higher than August’s total
Net supply of bonds was negative in July and August (-$1.7bn and -$4.9bn, respectively) but spiked in September to $21.6bn
7% of September’s new issuance was for “Green” bonds
Only 26% of September’s taxable muni bond issuance was to raise new money
YTD, new money borrowing makes up 33% of taxable issuance, up from last year’s 24% share
2021 Muni Outlook – Source: CreditSights, as of 10/4/2021
Unless there is a significant fall-off in the pace of new issuance, net supply is likely to be positive in October
For October, redeemed principal totals $29.9bn and interest totals $9.3bn
Based on YTD volume through the end of September, 2021’s total issuance is on pace to be about $485bn, which would be 6% higher than last year and a record high
Relative to corporate bonds, 10-year AA muni yields would have to fall 16 bps before they would be at parity with after-tax yields on comparable corporates
10-year single-A munis would have to fall by 21 bps
Assuming the lower prevailing federal income tax rate of 21%, tax-exempt yields would have to fall by 30 bps (AA’s) and 37 bps (single-A’s)
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.