BofA's McQueen Says Muni Market Is Operating Efficiently
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
municipal-bondsbank-of-america
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Bank of America senior executive Matthew McQueen stated that the municipal bond market is operating efficiently in a June 11 interview on Bloomberg Real Yield. McQueen, head of global FICC micro overseeing mortgages, securitized products, municipal banking & markets, and global credit at the firm, delivered his assessment amid positive trading for financial stocks. As of 19:22 UTC today, Bank of America stock traded at $55.14, up 1.32% on the day. That move outpaced the broader financial sector, with the stock trading near the top of its daily range of $54.06 to $55.28. The commentary provides a key institutional view on the stability of a $4 trillion market critical to state and local government financing.
The municipal bond market is a cornerstone of U.S. public infrastructure financing, funding schools, highways, and utilities. The last time a high-profile bank executive made a similar declaration of market efficiency was in late 2023, when Morgan Stanley's head of public finance noted orderly primary issuance despite rising rates. The current macro backdrop features a Federal Reserve policy rate at 5.25%-5.50%, with the 10-year Treasury yield hovering around 4.2%. The catalyst for scrutiny now is the market's resilience ahead of an anticipated heavy summer issuance calendar from municipalities. Recent volatility in broader credit spreads had raised questions about potential spillover into tax-exempt debt. McQueen's comments directly address those concerns, affirming a stable trading environment for institutional and retail buyers.
Bank of America's stock performance reflects broader confidence in financial institutions with large capital markets operations. The stock's 1.32% gain to $55.14 on June 11 significantly outperformed the S&P 500 Financials Sector Index, which rose only 0.8% for the session. The municipal bond market itself shows specific strength metrics. The S&P Municipal Bond Index has delivered a year-to-date total return of 3.1%. Trading volume in the primary market for general obligation bonds is up 15% year-over-year. The average yield on a 10-year AAA-rated municipal bond stands at 3.05%, which equates to a tax-equivalent yield of approximately 5.08% for an investor in the top federal tax bracket.
| Metric | Current Level | Year-Ago Level | Change |
|---|---|---|---|
| BAC Stock Price | $55.14 | $48.75 | +13.1% |
| 10-Yr AAA Muni Yield | 3.05% | 3.45% | -40 bps |
| S&P Muni Index YTD Return | 3.10% | 2.20% | +90 bps |
This performance contrasts with corporate credit, where high-yield spreads have widened by 25 basis points over the last month. The stability in munis underscores the asset class's defensive characteristics during periods of economic uncertainty.
The affirmation of municipal market efficiency is a positive signal for large banks with dominant underwriting desks. Bank of America, alongside peers like JPMorgan Chase and Citigroup, consistently ranks among the top underwriters of municipal debt. Efficient markets support higher fee income from underwriting and trading activities. Second-order benefits extend to asset managers like BlackRock and Vanguard, which run massive municipal bond funds for retail investors. These firms benefit from predictable bid-ask spreads and liquidity when adjusting portfolios. A counter-argument is that efficiency does not equate to low volatility or immunity from a sudden shift in interest rate expectations. If the Federal Reserve signals a more hawkish stance, all fixed-income markets, including munis, would reprice rapidly. Current positioning data from the Commodity Futures Trading Commission shows asset managers maintaining a net long position in 10-year Treasury futures, suggesting a cautious but not defensive stance on duration risk. Flow data indicates continued demand for intermediate-term municipal bond funds, with weekly inflows averaging $1.2 billion over the past month.
The immediate catalyst for the municipal market is the Federal Open Market Committee meeting scheduled for June 18. Any change in the Fed's dot plot or economic projections will directly impact Treasury yields and, by extension, municipal bond valuations. The next key data point is the Consumer Price Index report for May, due June 12. A hotter-than-expected print could pressure all fixed-income assets. Market technicians are watching the 3.15% yield level on the 10-year AAA municipal bond as a critical resistance point; a sustained break above could trigger a wave of selling from momentum-focused funds. For bank stocks like BAC, the $56.00 price level represents a major technical resistance area not breached since early 2025. A sustained move above that level would likely require confirmation of strong investment banking revenue in upcoming quarterly earnings, with reports beginning July 16.
An efficient market means retail investors can buy and sell municipal bonds at prices that closely reflect all available information, with minimal transaction costs. This lowers the cost of capital for cities and states, which can translate into better yields for investors. It also means mutual funds and ETFs that hold municipal bonds can be more accurately priced, providing a fairer valuation for shareholders. Efficiency reduces the risk of large, unexpected price gaps during normal trading hours.
Other major dealers have generally echoed a stable but cautious outlook for 2026. Goldman Sachs analysts have noted strong demand for tax-exempt income but have highlighted sensitivity to potential tax law changes. JPMorgan's quarterly credit outlook pointed to solid credit fundamentals for state and local governments, with average reserve levels at multi-year highs. The consensus is one of functional stability, with differences arising mostly on the forecast for net supply and the pace of Federal Reserve easing.
Historically, a rally in bank stocks driven by strong capital markets activity, as seen today, has been a neutral-to-positive signal for municipal bonds. In the five previous instances since 2020 where the KBW Bank Index rose more than 1% in a session while a senior banker praised market function, the S&P Municipal Bond Index was flat or slightly positive over the following week. The relationship is indirect, linked to confidence in financial system liquidity rather than a direct causal trade.
A senior Bank of America executive's confirmation of municipal market efficiency signals underlying stability in a critical, multi-trillion-dollar funding market for public projects.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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