Last week saw a reversal of fortune as mixed economic indicators and uncertainty of the Fed’s next move caused interest rates to rise along the whole yield curve. The curve also remained inverted as interest rates in 2 years were higher than both 10-year and 30-year rates.
The Bloomberg Municipal Index of -1.21% and the Bloomberg Long term Municipal Index of -1.66% had a negative return for the week. Municipal closed end funds as measured by the First Trust municipal closed end fund index gave back all the prior week’s performance and then some with a return of -3.11%. Municipal bonds underperformed Treasuries for the week as Municipal interest rates rose faster than Treasury rates.
Last week Lipper reported the second consecutive week of cash outflows from investors in the amount of $229 million, even while high yield funds are seeing positive cash flows into the sector. Municipal bond yields as a percentage of Treasuries continue to be extremely rich on the short end of the curve while longer dated municipal bonds are approaching 100% of Treasuries and offer good long term value.
While there will be plenty of economic indicators this week including the second revision of the 2nd quarter GDP, all eyes will be on Wednesday’s annual meeting in Jackson Hole by the members of the Federal Reserve. Investors will be looking for any clue as to the Fed’s next move and possibly further moves in the future.