Christian Neilson
In a recent webinar, LSEG US municipal bond data and pricing subject matter experts discussed the recent strong performance of the market. Underpinning this robustness are three fundamental elements, which include increased issuance, larger inflows of investor capital, and an improvement in the underlying fundamentals. However, spotting opportunity in this complex market requires yield curves and evaluated pricing that can help tease out the right debt securities to invest in.
- The US municipal bond market performed strongly in 2024, after struggling in the wake of the pandemic and recent economic factors.
- Three key factors are responsible for this change – robust issuance, stronger investment inflows, and more positive fundamentals.
- To engage with the opportunity that the US municipal bonds may present, investors and traders need to have, yield curves and evaluated pricing they can trust.
The US municipal bond market, impacted by economic challenges such as inflation and interest rate volatility, experienced a strong year in 2024. Peter Franks, director for market analysis on municipal bonds from TM3, Christian Neilson, director for LSEG municipal bond valuations and Cristina Rosales, director of LSEG pricing, discussed how the wind has changed direction for the US municipal bond market, and why having trusted data to support investment and trading decisions is so essential.
Contact TM3/MMD at clientservice@tm3.com for further information. TM3/MMD is a Registered Investment Adviser. Please note a disclosure statement is available at www.tm3.com/homepage/mmdSecFiling.jsf.
US municipal bond market movement
There are three key reasons why activity in the US municipal bond markets have moved on so much from 2022 and 2023. These are:
- Very robust issuance is capturing investment – 2024 experienced strong new issuance because of the pivot in the economic and interest rate environment. In 2024, 8,632 new issues entered into the US municipal bond market, equating to $496 billion. This is a 36% rise over the new issue activity of 2023. In October alone more than more than $64 billion in new issues came to market.
- Inflows have strengthened – Demand for this new issuance has been robust, with some compromise seen around the pricing of the very large issues. This has helped turn around inflows, from a record outflow of $50 billion leaving the US municipal bond market between January 2022 and October 2023 (according to LSEG Lipper) to about $30 billion in inflows since January 2024, with more than half that total inflow happening since the end of June. In the second half of 2024, weekly inflows averaged around $600 million per week, with 23 consecutive weeks of inflows.[1]
- Positive fundamentals underpin the market – Driving both new issuance and inflows is the fact that yields are better than high grade corporate bonds, which is attracting investors from other asset classes. However, investors and traders need to pay attention to the specifics of each debt instrument, as municipal bonds can vary in terms of sector, structure, and other aspects. In addition, trading correlations between the US municipal bonds and other markets such as the US Treasuries can vary day-by-day.
With opportunity comes the need for data and analysis. Having high quality municipal bond data – including yield curves and evaluated pricing – is essential for making the right trading and investment decisions.
Trusted data and pricing are essential
LSEG US municipal bond market, yield curves and evaluated pricing have been important resources for the fixed income markets for decades. The LSEG municipal teams who source, analyse, and evaluate the data have significant expertise and industry depth, ensuring that important, less tangible, elements such as market colour are included.
LSEG Municipal Market Data – also known in the sector as MMD or TM3 – is well-known for producing more than 250 yield curves with interdependent historical relationships for the US municipal bond market. Municipal Market Data includes the industry leading MMD AAA yield curve, AAA Scale Reads, analytics, and provides in-depth analysis on the municipal and treasury markets. Also available are real-time and historical new-issue calendars, pre-sale worksheets and sales results – from I-Deal and underwriters – along with real time Municipal Securities Rulemaking Board (MSRB) data. Municipal Market Data has a wide range of partnerships, which enables it to deliver data that can be integrated into products such as software for trading and underwriting, as well as risk and analytics tools.
LSEG Pricing Service delivers evaluated prices for just under one million municipal bonds, every day. Analysts with deep market knowledge review elements such as terms and conditions, and specific bond attributes for any given bond maturity, such as call coupon, state, and sector. Evaluators also consider new issue and secondary market trading, as well as market quotes for any given bond in lieu of direct market colour, which can be common in the municipal market. Valuations undertakes rigorous quality assessments prior to pricing disseminated to customers, in addition the LSEG Pricing Service offers customers a price challenge and deep dive process.
In short, the US municipal bond market has turned around recently, offering opportunity for traders and investors. However, making sound investment decisions requires having the right yield curves and pricing available.
For more information about US municipal bond market, yield curves and pricing explore LSEG Pricing Service.
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