Muni Monthly—November 2024

Blog

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

Performance Overview

Municipals rallied in November, outperforming taxable fixed-income.

Fixed-income markets were volatile in November following the election as the market processed the implications of a Republican sweep. Treasury yields moved higher earlier in the month amid fears that easy fiscal policy could contribute to higher inflation, supporting higher long-term Treasury rates. However, the selection of Trump’s Treasury Secretary, Scott Bessent, allayed these fears of unchecked fiscal expansion, and rates ultimately moved lower. From an economic data standpoint, jobless claims, third-quarter GDP and Personal Consumption Expenditures (PCE) price index inflation data were reported in line with expectations and remained relatively unchanged from prior readings. Muni market yields trailed Treasuries lower and generally outperformed alongside stronger supply and demand technical conditions. The Bloomberg Municipal Bond Index returned 1.73% during the month. Longer-duration and lower-quality securities outperformed in the strong market.

Supply and Demand Technicals

November supply stalled following a record YTD pace.

Entering November, year-to-date (YTD) municipal supply reached a record pace with a total municipal supply of $444 billion. This represents the highest level of supply recorded through the first 10 months of the year in muni market history. Due to the election, along with Veterans Day and Thanksgiving holidays, supply slowed in November as $25 billion of issuance represented the lowest supply level of the year and declined 30% from November 2023 levels.

Demand for municipals continued to improve in November, sidestepping fears that the value of the municipal tax exemption could decline with the upcoming administration. Municipal mutual funds recorded an estimated $7.5 billion of net inflows, according to Lipper, representing the highest month of inflows this year and extending YTD inflows to $45 billion. Long-term and high-yield category flows recorded the largest proportion of fund flows during the year.

2024 Municipal Supply (vs. Year-Over-Year Growth)

Fundamentals

Municipal upgrades continue to outpace downgrades.

Municipal fundamentals remained resilient in November as rating agency upgrades continued to outpace downgrades. Notably, the City of Philadelphia was upgraded one notch to A+ by S&P. Conversely, the agency placed the City of Chicago (Baa3/BBB+/A- by S&P, Moody’s and Fitch) on Creditwatch Negative. Western Asset expects upgrades to continue to outpace downgrades given strong tax collections and credit fundamentals, though we expect the pace of upgrades relative to downgrades to slow.

Valuations

Municipals offer above-average after-tax yield pickup versus taxable counterparts.

Despite the November slowdown, 2024 supply remains elevated and has been supportive of tax-exempt income opportunities and relative valuations. However, strong November technicals and muni outperformance underscore potential reinvestment risk associated with lower supply and higher demand that could quickly emerge in the municipal market. Western Asset anticipates that the 2025 municipal supply will remain elevated due to domestic infrastructure needs, but these elevated supply conditions should be well absorbed by demand from individuals seeking higher after-tax income opportunities as the Federal Reserve is expected to continue cutting rates. Should supply underperform expectations, persistent demand could lead to additional muni outperformance that could limit future income opportunities, further supporting the entry point offered by attractive municipal valuations today.

Taxable-Equivalent Municipal Yield Pickup vs. the Five-Year Average

View the Appendix for more information, including important performance and risk disclosures.

© Western Asset Management Company, LLC 2025. 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 Ltda. is regulated by Comissão de Valores Mobiliários; 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.