Home Financial Advisor Muni Market’s 5-12 months Streak Of November Features Is On The Line

Muni Market’s 5-12 months Streak Of November Features Is On The Line

Muni Market’s 5-12 months Streak Of November Features Is On The Line


This month is perhaps a great time for buyers to stuff their portfolios with municipal bonds.

It’s not simply that tax-equivalent yields on munis are hovering round 10% for rich residents in excessive tax states like New York and New Jersey. It’s the observe file. Since 2018, state and local-government debt has gained in November, in response to the Bloomberg Municipal Bond Index. And over the past 10 years the month has posted constructive returns seven instances.

Seasonal provide and demand dynamics assist to elucidate why. Municipal issuance tends to be slower in November and buyers sometimes have extra cash available from coupon funds than accessible debt to buy. Citigroup Inc. estimates that the money buyers obtain from bond funds will exceed the quantity of state and local-government bond gross sales by $3 billion in November.

“One of many predominant the reason why we like being lengthy in November is as a result of provide begins trending down,” stated Mikhail Foux, head of municipal technique at Barclays Plc.

The quantity of debt anticipated to be offered over the following 30 days is about $5.5 billion, or $3 billion lower than the 12-month common, in response to knowledge compiled by Bloomberg.

In fact, previous efficiency doesn’t assure future outcomes. The November profitable streak might be examined this yr if the financial system defies expectations and strengthens. As well as, tax-loss harvesting — the place buyers promote securities which have dropped in worth and reinvest in comparable, higher-yielding bonds — may weigh available on the market.

Barclays’ Name

Nonetheless, Barclays likes the muni market’s prospects for this month and the remainder of the yr. The agency recommends buyers begin including higher-rated, longer-maturity debt with coupons higher than 5% and callable in 10 years. 

Along with a downturn within the provide of bonds, Barclays tasks the financial system will sluggish to a 2% annual fee within the fourth quarter, from a strong 4.9%, easing strain on the Federal Reserve to boost charges and boosting bond costs. Curiosity-rate futures put the prospect of a fee improve Wednesday afternoon close to zero and only a one-in-five probability of a hike in December.

Muni mutual fund outflows are additionally comparatively low, tallying about $900 million final week, indicating buyers are getting extra sanguine concerning the market, stated Foux.

“You will have geopolitical dangers, you may have issues concerning the US financial system, and everyone’s speaking about recession in 2024,” he stated. “So if charges begin trending decrease and folks cease taking cash out of munis, I feel that’s all constructive.”

Positioning for the brand new yr additionally tends to offer the market a lift within the ultimate two months of the yr, Foux stated. Buyers purchase bonds to reap the benefits of one other, extra distinguished, seasonal pattern, when a flood of principal and curiosity funds have a tendency to come back into the market firstly of the yr.

This text was offered by Bloomberg Information.



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