Municipal Market Overview
Munis managed to eke out a positive return in March, a month that saw upticks in bond supply, volatility and investor risk aversion amid disappointing U.S. economic data and uncertainty over the Fed’s rate-hiking intentions. The modestly positive March was out of character for the asset class, and calls to question what it might mean for April. On average, April performance has accounted for 25% of the market’s full-year return over the past five years. Some of that performance has come from a reversion to the mean after a typically weak March. With this year’s positive performance in March, and the market contending with uneven economic data and a Fed readying for liftoff, this April has the potential to be different.
Both supply and demand were seasonally correct for March, with issuance up and demand slightly down. Issuance for the month came in at $41 billion, with 66% attributed to refunding activity. That's 25% higher than in February. Year-to-date (YTD) issuance is up 57% vs. 2014. The new supply has been concentrated in intermediate maturities and higher credit quality. This is well aligned with demand, which has been strongest in the intermediate space and higher on the credit scale, albeit the demand for high yield remains robust as well. Overall, flows into municipal funds totaled $1.9 billion in March and $9.4 billion YTD.