If you’re looking for reasons to believe in municipal bonds, there’s a host of new data on muni credit trends worth checking out. This month’s muni market snapshot from the Wells Fargo Asset Management Municipal Fixed-Income team provides an update on credit conditions. In this post, we’ll review how munis fared in May and explore new research from Standard & Poor’s that digs deep into some key factors behind muni creditworthiness in 2015.

May 2016 market snapshot

Munis posted another month of positive results, helped by favorable supply and demand trends. Here’s an infographic detailing these facts:

Corporate bonds have rebounded from severe sell-offs and muni bonds are no longer rich in comparison

This month’s snapshot of the municipal bond market from the Wells Fargo Asset Management Municipal Fixed-Income team provides an update on opportunities in crossover taxable markets:

We’ve been reporting on select opportunities that were available to investors willing to consider taxable municipal investments. Muni bonds appeared rich compared with corporate bonds earlier in the year, which made taxable investments look attractive. Recently, however, the strong performance of corporate bonds has brought valuations back in line.

Muni bond insights—April update

Muni bonds continued to perform well during April. The Barclays Municipal Bond Index returned 0.74%, the 10th consecutive month of positive total returns. Year to date, the index returned 2.42%. Meanwhile, BBB-rated muni bonds outperformed AAA-rated muni bonds during the first four months of 2016, driven by modest spread compression and a larger income component. As the chart below shows, muni bond prices have been positive over the past year and the asset class has been more stable than both the investment-grade and high-yield corporate bond markets.

This month’s snapshot of the municipal bond market from the Wells Fargo Asset Management Municipal Fixed-Income team focuses on opportunities in crossover taxable markets:

  • Cross-market relative value shows that taxable credits continue to offer relative value. The yields on taxable muni bonds have widened compared with their tax-exempt counterparts.
  • Meanwhile, muni credit continues to perform better than corporate credit, resulting in after-tax yields of certain corporate issuers that look significantly more attractive than the tax-exempt yields of muni bonds.

To start, here’s an infographic highlighting recent muni bond trends:

BBB-rated corporate yield spreads have become cheap compared with muni spreads

Here are two snapshots of the municipal bond market from the Wells Fargo Asset Management Municipal Fixed-Income team, focusing on:

  • The opportunity that we see in taxable bonds, which have cheapened significantly compared with municipal bonds
  • How banking regulations may be modified in a way that will encourage rather than discourage banks from holding municipals

Many positive trends within the municipal bond market continued throughout January. The Barclays Municipal Index, a broad measure of investment-grade municipal bonds, posted a seventh consecutive month of positive total returns, a positive 1.19%. Because U.S. investment-grade municipal issuers are less directly affected by sluggish global growth and energy price declines than corporate issuers, lower-rated municipals (A-rated and BBB-rated) continued to outperform higher-rated municipals as municipal investors have sought income.

Today we share three snapshots of the municipal bond market from the Wells Fargo Asset Management Municipal Fixed-Income team. We look at the municipal yield curve ahead of the Federal Reserve’s (Fed’s) December meeting, lower-rated credits outpacing higher-rated ones, and the strength of the health care sector.

In November, the Barclays Municipal Bond Index, a broad measure of investment-grade municipal bonds, posted a fifth consecutive month of positive total returns and outperformed most other fixed-income asset classes with its total return of 0.40% in November and 2.58% year to date. Meanwhile, the municipal yield curve flattened as investors prepared for the likelihood of the Fed to raise rates.

Percent change in state tax collection year over year

Today we share a monthly update from the Wells Fargo Asset Management Municipal Fixed-Income team. This month we take a snapshot look at growth in local tax revenues, how Illinois’ credit situation seems to be retracing California’s route to solvency, and technical factors supporting the municipal market.

In a period of rising global volatility, the municipal market has benefited from its safe-haven status, supported by the taxing power of state and local governments. The Barclays Municipal Bond Index, a broad measure of investment-grade municipal bonds, returned 2.17% during the first 10 months of 2015. As a result, municipal bonds have outperformed U.S. Treasuries, investment-grade corporate bonds, and high-yield bonds over the same time period. As we head into year-end, 10-year municipal bond yields have been fairly stable ahead of a potential increase in the federal funds rate. (The federal funds futures market is pricing in a 70% implied probability of a rate hike in December, up from a 41% chance on September 30.) In general, municipal credits are being supported by increased tax revenues even as negative news surrounding high-profile issuers such as Illinois causes investor concerns. Less new supply amid demand for municipal bond funds also has supported the asset class.