Municipals rallied Wednesday, ignoring a selloff in U.S. Treasuries, after the Federal Open Market Committee meeting minutes reiterated the Fed’s position it would raise rates 50 to 75 basis points at its July meeting to stave off inflation. Equities ended slightly up. Municipals were in their own lane Wednesday and triple-A yields fell four to 10 basis points, depending on the scale, while the two-, three-, five- and seven-year USTs rose above the 10-year, with some in the market seeing the FOMC minutes as dated now that the focus has turned the focus to a potential recession away from inflation concerns. The Fed “wants slower economic growth to curb inflation using interest rates as a brake on the overheated job market,” said Carl Ludwigson, managing director at Bel Air Investment Advisors. The good news, he said, is “the bond market may have already priced in much of the Fed’s action plan. The threat to asset prices is broad based inflation pushing central banks to tighten monetary policy even more rapidly than expected.” If the Fed’s policy response “proves too aggressive, then Treasuries and high-quality municipal bonds will again be the place to hide as tighter financial conditions lead to demand destruction,” he said.
Source: The Bond Buyer