Muni Market’s Five-Year Streak of November Gains Is on the Line

infrastructure-road-work.jpg FREDERIC J. BROWN/AFP/Getty Images Investment>Fixed Income Muni Market’s Five-Year Streak of November Gains Is on the Line Since 2018, state and local-government debt has gained in November.

(Bloomberg) -- This month might be a good time for investors to stuff their portfolios with municipal bonds.

It’s not just that tax-equivalent yields on munis are hovering around 10% for wealthy residents in high tax states like New York and New Jersey. It’s the track record. Since 2018, state and local-government debt has gained in November, according to the Bloomberg Municipal Bond Index. And over the last 10 years the month has posted positive returns seven times.

Related: The Higher Your Tax Bracket, the More Attractive Municipal Bonds May Look

Seasonal supply and demand dynamics help to explain why. Municipal issuance tends to be slower in November and investors typically have more cash on hand from coupon payments than available debt to purchase. Citigroup Inc. estimates that the cash investors receive from bond payments will exceed the volume of state and local-government bond sales by $3 billion in November.

“One of the main reasons why we like being long in November is because supply starts trending down,” said Mikhail Foux, head of municipal strategy at Barclays Plc. 

Related: Muni Investors Can Find Bargains in Unlevered Closed-End Funds

The amount of debt expected to be sold over the next 30 days is about $5.5 billion, or $3 billion less than the 12-month average, according to data compiled by Bloomberg. 

Of course, past performance doesn’t guarantee future results. The November winning streak will be tested this year if the economy defies expectations and strengthens. In addition, tax-loss harvesting — where investors sell securities that have dropped in value and reinvest in similar, higher-yielding bonds — could weigh on the market. 

Barclays’ Call

Still, Barclays likes the muni market’s prospects for this month and the rest of the year. The firm recommends investors start adding higher-rated, longer-maturity debt with coupons greater than 5% and callable in 10 years.  

In addition to a downturn in the supply of bonds, Barclays projects the economy will slow to a 2% annual rate in the fourth quarter, from a robust 4.9%, easing pressure on the Federal Reserve to raise rates and boosting bond prices. Interest-rate futures put the chance of a rate increase Wednesday afternoon near zero and just a one-in-five chance of a hike in December. 

Muni mutual fund outflows are also relatively low, tallying about $900 million last week, indicating investors are getting more sanguine about the market, said Foux. 

“You have geopolitical risks, you have concerns about the US economy, and everybody’s talking about recession in 2024,” he said. “So if rates start trending lower and people stop taking money out of munis, I think that’s all positive.” 

Positioning for the new year also tends to give the market a boost in the final two months of the year, Foux said. Investors buy bonds to take advantage of another, more prominent, seasonal trend, when a flood of principal and interest payments tend to come into the market at the start of the year.

TAGS: Mutual Funds 1 comment Hide comments Comment * Switch to plain text editor

More information about text formats

Text format CommentsPlain text Comments
  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>
Plain text
  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
PublishLog in or register to comment Save Leave this field blank Related Sponsored
  • Next Article
  • Previous Article

Owl Media Group takes pride in providing social-first platforms which equally benefit and facilitate engagement between businesses and consumers and creating much-needed balance to make conducting business, easier, safer, faster and better. The vision behind every platform in the Owl Media suite is to make lives better and foster a healthy environment in which parties can conduct business efficiently. Facilitating free and fair business relationships is crucial for any thriving economy and Owl Media bridges the gap and open doors for transparent and successful transacting. No advertising funds influence the functionality of our media platforms because we value authenticity and never compromise on quality no matter how lucrative the offers from advertisers may seem.

Originally posted on: https://www.wealthmanagement.com/fixed-income/muni-market-s-five-year-streak-november-gains-line