Municipal Bonds Rise with Treasuries Amidst Tech Stock Turbulence
Municipal bonds experienced a surge in Monday trading alongside Treasury yields. This surge came amidst a flight to haven assets by investors, triggered by the rapid rise of a Chinese AI startup and resulting market volatility in US stocks.
Benchmark state and local government bond yields saw declines of up to 6 basis points by Monday's close. Specifically, 10-year securities dropped 6 basis points to 3.07%, marking the lowest level since December 18, 2022.
The influx of investors seeking safety in fixed income was driven by the tech sector's exceptional praise for DeepSeek, a Chinese ChatGPT alternative. This praise coincided with sell-offs in industry giants Nvidia Corp. and Oracle Corp. and declines in chipmakers.
"Municipals are poised to benefit from this flight to quality, especially given the prevailing attractive absolute yield environment," commented Shannon Rinehart, a municipal bond investment co-lead at Columbia Threadneedle Investments. "This provides investors with compelling reasons to rebalance their portfolios in light of tech sector developments."
According to JPMorgan Chase & Co. strategists led by Peter DeGroot, the gains in Treasury yields bode well for municipal bonds. They anticipate inflows into municipal ETFs and, assuming sustained gains, into open-end funds as well.
"This is particularly relevant considering the reduced issuance volume this week and the anticipated significant reinvestment capital expected in February," they noted in a client update.