skip navigation
Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

MARKETS
11 May 2021

Weekly Municipal Monitor—Assessing Census Apportionment Data

By Rolf E. Lundelius, PhD
Download the Article

Stay up to date on timely topics and market events. Subscribe to our Blog now.

Municipals Posted Positive Returns as Yields Moved Lower During the Week

US municipal yields moved lower during the week in sympathy with the drop in Treasury yields. AAA municipal yields also generally moved lower over the week. Muni/Treasury ratios moved higher as munis underperformed. Fund flows continued to support favorable technicals. The Bloomberg Barclays Municipal Index returned 0.19% while the HY Muni Index returned 0.37%. This week we evaluate the recently released 2020 US Census data.

Fund Flows Continue to Be a Strong Technical Tailwind

Fund Flows: During the week ending May 5, municipal mutual funds recorded $2.0 billion of net inflows, according to Lipper. Long-term funds recorded $1.7 billion of inflows, high-yield funds recorded $458 million of inflows and intermediate funds recorded $137 million of outflows. Net inflows year-to-date (YTD) reached $43.5 billion and munis have now recorded net inflows in 50 of the past 51 weeks.

Supply: The muni market recorded $10 billion of new-issue volume during the week, up from $6 billion the prior week. Total issuance YTD of $150 billion is up 24% from last year’s levels and this coming week’s new-issue calendar is expected to slow to approximately $7 billion.

This Week in Munis: Assessing Census Apportionment Data

The US Census reapportionment of the House of Representatives has shone a spotlight on the differences in 10-year population growth and implied migration trends among states. Over the 10 years from 2010 to 2020, Utah, Idaho and Texas observed the largest population growth of 18%, 17% and 15%, respectively, versus 7.4% for the US as a whole. Florida, often in the headlines due to the attraction of having no state income tax, experienced a growth rate of 14% over the 10-year period. The high income-tax state of California’s population grew by more than two million, but considering its larger base and recent domestic outmigration estimates, its growth rate (6.1%) was less than the US average.

Exhibit 1: 2010-2020 Census Apportionment Population Growth
2010-2020 Census Apportionment Population Growth
Source: US Census, Bloomberg, Western Asset. As of 07 May 21. Select the image to expand the view.
Exhibit 2: Gross State Product—Information Sector
Gross State Product—Information Sector
Source: Bureau of Economic Analysis, Western Asset. As of 07 May 21. Select the image to expand the view.

While relative population growth trends tend to reach the headlines, they do not tell the whole story of economic growth prospects—particularly, when one looks at specific economic sectors that inform wealth levels and the tax base of municipal entities. While California’s population growth rate has lagged that of Texas and Florida, California’s growth in the relatively high-paying information sector continues to far outstrip these states. Similarly, New York also demonstrates below-average population growth, but has held a commanding share of this higher income sector, while also leading in sectors such as finance and real estate.

As municipalities continue to grapple with higher costs of the Covid pandemic, coupled with increasing pension and health care costs, we anticipate higher tax rates will continue to drive headlines around migration concerns. While long-term migration trends remain an important secular credit consideration, the prevalence of industries with favorable future prospects and wealth generation will be a primary driver in assessing where the income generators will ultimately reside and produce long-term benefits for the associated municipal entity.

Exhibit 3: Municipal Bond Yields and Index Return
Municipal Bond Yields and Index Return
Sources: (A) Muni yields: Thomson Reuters MMD; Treasury Yields: Bloomberg. As of 07 May 21. (B) Bloomberg. As of 07 May 21. Select the image to expand the view.
Exhibit 4: Tax-Exempt and Taxable Municipal Valuation
Tax-Exempt and Taxable Municipal Valuation
Sources: (A) Bloomberg, Western Asset. AAA, AA, A, BBB Corporate Indices. After-tax yield assumes a top effective tax rate of 40.8%. As of 07 May 21. (B) Bloomberg, Western Asset; Taxable Muni Index Corporate comparable used is the long corporate (ex. BBB) to better align credit quality and duration. Select the image to expand the view.
© Western Asset Management Company, LLC 2024. The information contained in these materials ("the materials") is intended for the exclusive use of the designated recipient ("the recipient"). This information is proprietary and confidential and may contain commercially sensitive information, and may not be copied, reproduced or republished, in whole or in part, without the prior written consent of Western Asset Management Company ("Western Asset").
Past performance does not predict future returns. These materials should not be deemed to be a prediction or projection of future performance. These materials are intended for investment professionals including professional clients, eligible counterparties, and qualified investors only.
These materials have been produced for illustrative and informational purposes only. These materials contain Western Asset's opinions and beliefs as of the date designated on the materials; these views are subject to change and may not reflect real-time market developments and investment views.
Third party data may be used throughout the materials, and this data is believed to be accurate to the best of Western Asset's knowledge at the time of publication, but cannot be guaranteed. These materials may also contain strategy or product awards or rankings from independent third parties or industry publications which are based on unbiased quantitative and/or qualitative information determined independently by each third party or publication. In some cases, Western Asset may subscribe to these third party's standard industry services or publications. These standard subscriptions and services are available to all asset managers and do not influence rankings or awards in any way.
Investment strategies or products discussed herein may involve a high degree of risk, including the loss of some or all capital. Investments in any products or strategies described in these materials may be volatile, and investors should have the financial ability and willingness to accept such risks.
Unless otherwise noted, investment performance contained in these materials is reflective of a strategy composite. All other strategy data and information included in these materials reflects a representative portfolio which is an account in the composite that Western Asset believes most closely reflects the current portfolio management style of the strategy. Performance is not a consideration in the selection of the representative portfolio. The characteristics of the representative portfolio shown may differ from other accounts in the composite. Information regarding the representative portfolio and the other accounts in the composite are available upon request. Statements in these materials should not be considered investment advice. References, either general or specific, to securities and/or issuers in the materials are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendation to purchase or sell such securities. Employees and/or clients of Western Asset may have a position in the securities or issuers mentioned.
These materials are not intended to provide, and should not be relied on for, accounting, legal, tax, investment or other advice. The recipient should consult its own counsel, accountant, investment, tax, and any other advisers for this advice, including economic risks and merits, related to making an investment with Western Asset. The recipient is responsible for observing the applicable laws and regulations of their country of residence.
Founded in 1971, Western Asset Management Company is a global fixed-income investment manager with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Zürich. Western Asset is a wholly owned subsidiary of Franklin Resources, Inc. but operates autonomously. Western Asset is comprised of six legal entities across the globe, each with distinct regional registrations: Western Asset Management Company, LLC, a registered Investment Adviser with the Securities and Exchange Commission; Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank; Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services License 303160; Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services License for fund management and regulated by the Monetary Authority of Singapore; Western Asset Management Company Ltd, a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan; and Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority ("FCA") (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.