Fixed Income   |   Mar 19, 2020

Municipal Market Volatility and Liquidity Amid COVID-19

Given the continued market volatility, we want to make sure we continue providing clients with regular updates on the state of the municipal bond market. Please see below the market update compiled from our trading and portfolio management teams:

  • Municipals continue to cheapen today by approximately 50 basis points across the curve and are drastically underperforming Treasuries, which are up about 5 basis points for the day.
  • A massive flight to safety has resulted in Treasury bills showing negative yields out through 6 months
  • Dealers are still risk averse as volatility remains extreme and markets behave abnormally. Their risk departments are tapping traders on the shoulder to sell positions and lighten up on inventory.
  • Large mutual fund complexes’ redemptions continue, as mutual funds keep selling their most liquid holdings such as VRDNs and pre-refunded bonds.
  • Dealers are holding large amounts of VRDNs tendered by funds, but with so many other opportunities buyers have been limited yet they are contractually required to set the rates at market clearing levels. For this reason, dealers are setting rates at higher levels where they think the balances will clear quickly. Over the last week, coupons for General Market VRDNS went from 1% to 8%
  • Fund flows, as reported by EPFR, indicate about $11 billion in outflows over the last 7 days.
  • There is significant dislocation in bid wanted sales. Prior to this crisis, the municipal market would see $750 million out for the bid on a typical day. These past few days the bid lists have increased to $2 billion, and today they totaled $4.5 billion – with virtually no one buying. Ratios across the curve remain at elevated levels – with front end ratios north of 300%
  • Dealers are experiencing stress all the way through their back office, and trade fails have increased because so many people working remotely is putting stress on company infrastructures. Today, a large municipal dealer had a confirmed case of COVID-19 on the NJ trading desk where half their trading team was working. They shut down the desk and all traders went home in the middle of a big bid wanted list, this further hurt liquidity.



Past performance is not a guarantee of future results. Inherent in any investment is the potential for loss.

All information is as of the date of this document unless otherwise noted. This document is not intended as investment advice or a recommendation of any security or investment strategy for a specific recipient. Investments or strategies described herein are provided as general market commentary, and there may be no account or fund managed by Fiera Capital Inc. for which investments or strategies described herein are suitable due to the various types of accounts or funds that are managed by Fiera Capital Inc. Nothing herein constitutes an offer to sell, or a solicitation of an offer to purchase, any securities, nor does it constitute an endorsement with respect to any investment area or vehicle. This material can not be reproduced or redistributed without the prior written consent of Fiera Capital Inc.

Certain information contained in this document may constitute “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” anticipate,”  project,” “estimate,” “intend” “continue,” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of any strategy or market sector may differ materially from those reflected or contemplated in such forward-looking statements.

Statements regarding current conditions, trends or expectations in connection with the financial markets or the global economy are based on subjective viewpoints and may be incorrect.

The information provided is proprietary to Fiera Capital Inc. and it reflects Fiera Capital Inc.’s views as of the date of this document. Such views are subject to change at any point without notice. Some of the information provided herein is from third-party sources and/or compiled internally based on internal and/or external sources and are believed to be reliable at the time of production but such information is not guaranteed for accuracy or completeness and was not independently verified. Fiera Capital Inc. is not responsible for any errors arising in connection with the preparation of the data provided herein. No representation, warranty, or undertaking, express or implied, is given as to the accuracy or completeness of such information by Fiera Capital Inc. or any other person; no reliance may be placed for any purpose on such information; and no liability is accepted by any person for the accuracy and completeness of any such information.

Any charts, graphs, and descriptions of investment and market history and performance contained herein are not a representation that such history or performance will continue in the future or that any investment scenario or performance will even be similar to such chart, graph or description. Any charts and graphs contained herein are provided as illustrations only and are not intended to be used to assist the recipient in determining which securities to buy or sell, or when to buy or sell securities. Any investment described herein is an example only and is not a representation that the same or even similar investment scenario will arise in the future, or that investments made will be as profitable as such examples or will not result in a loss to any such investment vehicles. All returns are purely historical and are no indication of future performance.