Remember when investors were fleeing the markets and municipal bonds were caught in the downdraft?

Chaotic tariff announcements spooked investors, while internal market factors, like tax-related liquidity needs and a flight to cash, amplified the turmoil.

Muni yields surged and bond funds saw seven straight weeks of outflows.

Now, the winds are shifting.

Flows turn positive

Bond funds flows have turned positive for two consecutive weeks and even investors who typically prefer taxable bonds are now showing increased interest in municipals.

“Municipal bonds are yielding as much as their taxable counterparts due to heavy new supply,” according to Nuveen. “This trend is enticing crossover buyers, who would buy a tax-exempt bond because of the favorable risk profile.”

The municipal market “should enjoy solid demand for the next several months,” the firm said, with an estimated $40 billion in reinvestment money coming due in May and about $120 over the summer.

Strong market despite volatility

As we discussed (“Through Tariff Turmoil, Muni Yields Shine”), last month’s municipal bond selloff was driven by tariff turmoil, not credit quality.

It’s no surprise, then, that despite recent heavy issuance and a flurry of market-moving headlines, the municipal bond market remains strong. Yields (which move in the opposite direction of prices), rose less than Treasuries, demonstrating the market’s stability and resilience, according to a Truist Securities executive at a public finance conference this week, as reported by The Bond Buyer.

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“In the absence of all the news that is surrounding the market, that is a very solid performance, given the fact that we’ve had several weeks of $14 billion of issuance,” he said. “So I would say that’s kudos to our market for sustaining through a very volatile news cycle, and pretty remarkable when you think about six weeks.”

PPI down

The producer price index, which economists had predicted would rise .2% in April, instead dropped .5%, easing – at least for now – inflation concerns.

Meantime, investment-grade municipal bonds can still be purchased to yield approximately 5.00%, a level that isn’t likely to last too long if prices continue to decline.

For investors who focus on credit quality instead of getting caught up in market headlines, there are promising opportunities to capture lucrative yields from high-quality municipal bonds.