The good news released last week that inflation may have peaked was a relief for equity investors but the fixed income market, while experiencing a bit of roller coaster ride, finished relatively flat for the week.
Last week ended with Lipper reporting the first outflow of investor cash in three weeks but considering the historic amount of cash due this month from bonds maturing, being called and dividend reinvestment is not too concerning. Tax exempt ratios to Treasuries continue to be extremely overvalued on the short end of the curve with tax-equivalent yields below comparable Treasury yields. The 10 and 30-year part of the curve is more fairly valued with the 30 year being the cheapest.
Taxable Municipal bonds offer significantly better value in the 1 to 7 year range.
This coming week brings anther big batch of economic indicators with manufacturing, housing, and retail sales on tap to be released. In addition, the FOMC minutes from the last meeting will be released and may give investors a better view of what the Federal Reserve may do in the future.
Tax-exempt Municipal issuance will be slightly higher than average but nothing the market cannot handle considering the strong technical position of the market. Taxable Municipal bond issuance will be over 2 times the weekly average but should be easily absorbed as they are relatively cheap to Treasuries.