Broken Arrow! The Muni Market is Overrun

March 25, 2020

During the Vietnam war, the military term “broken arrow” was universal code meaning a ground unit was being overrun by the enemy; an urgent call to send all available assets to help. Now!

Unprecedented liquidations from municipal funds and ETFs last week overran the ability of dealers and traditional investors to manage redemptions. The result was the sharpest one-week decline in municipal bond prices since at least 1981. The technical selling pressure completely overran fundamental valuations. According to Lipper data, municipal funds saw net redemptions of $12.3B, nearly three times the previous outflow record. Over 40% of the redemptions were from high yield municipal funds/ETFs, where credit and liquidity concerns were most acute. But investors sold what they could, which to a large extent was higher-quality, short-term maturities, which then negatively impacted the entire municipal investor base.

Broken Arrow Comments Thumbnail
Download the rest of our comments on the current Municipal Market.

This is not a complete analysis of every material fact regarding any company, industry or security. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Baird does not provide tax or legal advice. Please consult your legal or tax professional for specific information.

Fixed income is generally considered to be a more conservative investment than stocks, but bonds and other fixed income investments still carry a variety of risk such as interest rate risk, regulatory risk, reinvestment risk, credit risk, inflation risk, call risk, default risk, political risk, tax policy risk and liquidity risk. In a rising interest rate environment, the value of fixed-income securities generally decline and conversely, in a falling interest rate environment, the value of fixed income securities generally increase. Municipal securities investments are not appropriate for all investors, especially those taxed at lower rates. 

Past performance is no guarantee of future results. Investors should consider the investment objectives, risks, charges and expenses of each fund carefully before investing. This and other information is found in the prospectus and summary prospectus. For a prospectus or summary prospectus, contact Baird directly at 866-442-2473. Please read the prospectus or summary prospectus carefully before investing.