A wave of sell-offs swept through US municipal bonds: the number of transactions in a single day was the highest since at least 1995, and yields peaked since 2011

The Zhitong Finance App learned that a wave of sell-offs sweeping the US municipal bond market has driven state and local government bonds to set the busiest single-day transaction record in more than 30 years.

According to reports to the Municipal Securities Rulemaking Board (MSRB), a total of about 117,419 municipal bond transactions were recorded on Monday, the highest number since at least 1995. There has also been an increase in trading volume in terms of face value, but it has yet to hit historical records. According to MSRB data, a total of 21.8 billion US dollars of municipal bonds were traded on Monday, lower than a few trading days earlier this month, but higher than the annual average of about 14.6 billion US dollars.

This surge in trading comes as investors are facing inflation concerns fueled by the ongoing US-Iran conflict, as well as fears that the Federal Reserve will turn hawkish, triggering widespread sell-off in the bond market. Benchmark municipal bond yields climbed again on Tuesday, rising as much as 3 basis points at one point.

Andrew Clinton, CEO of Clinton Investment Management, said that the rise in absolute yields has attracted new buyers, sharp fluctuations in interest rates have created tax loss deduction trading opportunities, and some investors have been disrupted by this round of sell-offs. Together, these factors have contributed to the surge in municipal bond trading.

He said, “The combination of all these factors has led to a greater volume of transactions. Moreover, until yesterday, the new bond issuance schedule was quite intense and strong, so a large number of transactions were underway, and people sold other bonds in their hands to make room for the new bonds they purchased.”

Municipal bond prices continued to fall, driving benchmark bond yields to their highest level since at least 2011. This market trend will record its worst monthly performance since 1987, and has recorded a 4.7% decline so far this month.

Ben Barber, head of municipal bonds at Franklin Templeton, said that the performance of municipal bonds is quite steady considering various factors that are unfavorable to this asset class. According to compiled data, this month's supply has surpassed US$51 billion, the highest level since September 2020.

He said, “Municipal bonds clearly outperformed US Treasury bonds. There is no doubt about this, but considering that capital flows in the primary market are very strong and bidding and demand activity is at a historically high level, the performance is not as bad as expected. Therefore, we would describe the overall trading environment as relatively orderly.”