Municipal Bond Market Commentary

Rate markets rallied and yield curves flattened during the second quarter as investors reassessed the Federal Reserve’s level of tolerance for a ‘transitory’ rise in inflation. Fed Chair Powell has consistently maintained that the Committee both expects and plans to tolerate inflation levels above their 2% long-term target as the economy recovers from the pandemic-induced recession. While the bond market was already in rally mode when the quarter began, the release of the Fed’s updated Summary of Economic Projections in June signaled to market participants that the Committee’s patience was on a relatively short leash.