Municipal New Issuance: The negotiated calendar for the month of December totaled to approximately $32 billion with the largest deal of the month being the $2.1 billion Dormitory Authority of the State of New York State Sales Tax Revenue bonds issuance. The second largest deal of the month was the $1.5 billion New Jersey Transportation Trust Fund Authority for their Transportation Program Bonds. The third largest issue of the month was the $1.5 billion Future Tax Secured Tax-Exempt Subordinate Bonds New York City Transitional Finance Authority issuance. With this month’s issuance of $31.64 billion, this month has brought this year’s total issuance to $507.6 billion, a significant increase in issuance from 2023’s issuance total of $385 billion. 2024 saw a 31% increase in issuance from 2023, breaking 2020’s negotiated issuance record of $484 billion.

Municipal Secondary Trading: Secondary trading for the month of December totaled to just over $225.43 billion with 55% of secondary trading being dealer sells. December 19^th had the most single-day trading volume for the month which also happened to be the day following the Fed’s rate cut. It is also important to note that this followed the Fed’s announcement that they now only project just 2 more rate cuts and that they anticipate a pause January 2025. This caused a massive sell-off in the markets pushing yields higher by an average of 15.5 basis points across the curve.

Municipal Spreads: The month of December saw muni yields rise across the curve by an average of 37 basis points, with the yields rising the most in the 15–20 year range. Yields on 10-year munis rose by 34 basis points to end the month at 3.12. Since the beginning of the year of 2024, we have seen yields rise across the curve with 10-year notes starting off the year at 2.26%, ending the year at 3.12%, and yields on average rising by approximately 56 basis points. Of note, yields rose the most in the 6–10 year range. The 10-year muni-to-Treasury ratio for the month of December did rise by 1.26 percentage points to end the month at 69.19%. With yields rising overall this year, we did see munis cheapen compared to Treasuries in the 2–10 year ranges with the 2-year ratio rising by 7.53 percentage points to 65.83%. The 5-year ratio rose by 8.96 percentage points totaling to 66.01%. The 10-year ratio rose by 10.71 percentage points totaling to 68.93%. We did see the 30-year ratio richen the most overall for the year by just 2.25 percentage points to end the year at 81.95%. Munis continue to remain historically expensive but many are overlooking this as yields continue to be attractive to investors. We did see the muni curve steepen this month by 13.5 basis points and by 16.1 basis points overall for the year to end 2024 at 106 basis points.

Returns for the month of December were in the red with a loss of 1.46%, bringing year-to-date returns to just above 1%. Prior to the start of December, year-to-date returns were at 2.55%. This is the first time since 2013, which saw a loss of just .26%, that we experienced the month of December ending in the red for munis. Yields rose overall for December, as the Fed President Jerome Powell, stating that they will have more of a cautious approach in regard to rate cuts for 2025. For the first quarter of the year, munis were in the red with losses of approximately .39% as the debate amongst investors largely centered on when the Fed will begin to cut rates. With the Fed stating that they still would like to get inflation under control before any rate cuts, during the second quarter of the year we continued to see losses as investors continued to wait for any signs of a rate cut. In June we did see signs that inflation was starting to slow down, but the Fed continued their stance of holding key rates unchanged until their long term target for inflation of 2% was achieved.

For the third quarter of 2024, munis saw positive returns as the markets anticipated a 50 basis point cut in rates, which pushed returns into the green at 2.3%. The fourth quarter was roller coaster ride for returns as October saw loses of 1.46%, November has a positive return of 1.73%, and December have a loss of 1.46%. Although we did see two rate cuts of 25 basis points each in Q4 totaling to the Fed cutting rates by a total of 100 basis points for the year, the Fed has indicated that they will be more cautious in their approach to rate cuts in 2025. This sent yields soaring by an average of 17.7 basis points since then. 2025 will be an interesting pocket of time for munis as we will have a new administration which could change tax exemption for municipal bonds which will impact overall supply. This possibility, coupled with the Fed’s monetary policy which still remains uncertain as inflation still remains a concern for the Fed, will cause some unease and apprehension in the markets. We should see the Fed take a pause in Q1 as the Fed continues to try to contain inflation and a strong jobs market. We anticipate that this will make the Fed even more cautious and data dependent in 2025.

Municipal Supply: AmeriVet is expecting negotiated new issuance for 2025 to be approximately $510 billion as issuers will be eager to come to market before any changes to the tax exemption benefit of municipal bonds that the new administration may implement as the Tax Cut and Jobs Act of 2017 is set to expire in December 2025. If we see any indication that the tax-exemption of municipal bonds gets removed or limited, we could see a drop in issuance, and if there is no indication of a threat to tax-exemptions, we could see higher issuance for the year.