Trade Turmoil Creates Opportunity - Municipal April Update

2025-05-09 05:50:00 ET

Summary

• Tariff concerns spurred historic volatility and negative total returns in April.
• Challenged supply-and-demand dynamics and constrained liquidity acted as a considerable drag.
• We see favorable opportunities at today’s adjusted absolute and relative valuations.

By Patrick Haskell | James Schwartz | Sean Carney

Market overview

Municipal bonds posted negative total returns in April as the announcement of reciprocal tariffs early in the month spurred extreme volatility across global markets. The asset class, though primarily supported by domestic revenue, was dragged down by rich valuations, challenged supply-and-demand dynamics, and constrained liquidity, and posted four of the ten largest daily sell-offs in the past 20 years during the week of April 7. Fortunately, market conditions stabilized following President Trump’s announcement of a 90-day pause on most tariffs, and some losses were mitigated. The S&P Municipal Bond Index ultimately returned –0.56%, bringing the year-to-date total return to – 0.80%. The front end of the yield curve, AAA-rated credits, pre-refunded bonds, and the state GO, special tax, and housing sectors performed best....

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