Municipal Fixed Income Commentary 3Q2010

By the end of the 3rd quarter, Municipal yields experienced significant declines of 12 to 40 bps 5 Yrs and out, while 4 Yrs and in saw a rise of 3 to 10 bps. During July and August, market factors such as limited municipal supply and record demand, attractive after-tax yield levels versus Treasuries and a search for yield contributed to the rally. Although September’s heavy new issue supply caused a selloff, the 3rd quarter ended with positive performance. One offset to new issues supply continues to be taxable BABs which reduced the supply of tax-exempt bonds. As a result, the municipal yield curve experienced a bull flattener in 2yr and 30yr securities as the 2yr increase 10 bps and the 30yr declined 27 bps.