Over the course of the first three months of 2022, municipal bonds have experienced their worst quarter in the last 40 years, declining roughly -6.2%. In addition to experiencing their worst quarter in recent memory, the slide has continued to worsen throughout the month of April. Even with most municipalities flush with cash because of COVID relief packages and record high property values, these positive factors couldn’t stem the tide through the first four months of the year.
The cause for the rapid descent of the asset class is attributable to two main factors: First and foremost, over the course of the first 4 months of the year, interest rates have significantly increased because of the U.S. Federal Reserve maintaining a hawkish stance on the path forward for interest rates and combatting the currently high inflation figures. Secondly, the asset class has seen significant outflows within the space because of higher interest rates but also due to seasonal selling for tax remittance purposes.
Within our client portfolios, we were already prepared for this decline, with significant underweights to traditional fixed income, allocating the additional funds to our alternative sleeve which has performed positively over this same timeframe. In addition, for the positions that are down within our client portfolios, we recently performed tax-loss harvesting to lock-in the losses while still maintaining our allocation to the municipal asset class.