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A Mixed Quarter for the Municipal Market

Thu, 9 Nov 2017

A few distressed credits struggled in the third quarter, but yield-hungry investors kept their appetite for medium- and lower-quality munis.

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Video Transcript

Beth Foos: Although still significantly positive year to date, performance in the municipal market was mixed in the third quarter of 2017.

For example, the median return for funds included in Morningstar's muni-national long category was 1.2% for the quarter. This includes a median gain of 66 basis points in July, 84 basis points in August, and a 32 basis-point loss in the month of September as the yield curve flattened over the month.

Overall, median returns for funds in Morningstar's high yield muni category followed the same trend yet were a bit stronger finishing the three-month period with an average gain of 1.5%.

Except for a few distressed credits in the muni market that continued to struggle, for the most part, medium and lower quality tiers of the market outperformed as investors continued their searched for yield.

Supply and demand trends remained supportive year to date, and bonds issued in the high-yield municipal tobacco sector provided a boost to funds with larger stakes here.

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