Investors are gearing up for a favorable time of year in the municipal-bond market as state and local government debt is poised to outperform other areas of fixed income over the next few months.
In the summer, new bond sales tend to slow down while money flowing back to investors increases — creating a supply and demand mismatch that boosts prices. The 10-year monthly average returns in May, June and July are positive, according to data compiled by Bloomberg.
“We continue to see a constructive environment for purchasing muni bonds despite a bearish Treasury market,” analysts at Bank of America Corp. said in a Friday research note. “Outperformance of munis vs Treasuries should continue during the May-August time frame.”
Current returns have been lackluster this year, especially after the turbulence that rocked global financial assets — including munis — after President Donald Trump’s tariffs volley in early April. So far in 2024, municipal bonds have lost 0.81%, underperforming US Treasury debt and corporate securities, according to data compiled by Bloomberg.
In June, July and August, the three months of “summer redemption season,” issuers will return $107 billion of principal and $42 billion of interest, according to a report from analysts led by Pat Luby, senior municipal bonds strategist at CreditSights. On May 1, payments were estimated to include $15 billion of principal and $7 billion of interest. Redemptions this month are expected to be 21% larger than last year, according to CreditSights figures.
Alex Petrone, head of fixed income for Rockefeller Asset Management, said that muni performance should benefit if there’s more stability in the Treasury market and if issuance slows down.
“If issuance slows down — historically it has slowed down in the June, July, August time frame — then that bodes well for a really strong tailwind for munis, particularly if we’re on the precipice of seeing more inflows into the space,” she said.
Still, last summer the calendar was heavy. “It’s a wait and see mode,” she added.
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