Municipal Market Highlights

  • Munis posted a modestly positive return in March despite increased supply.
  • Continued market volatility is likely amid uneven economic data and a Fed readying to raise rates; but pullbacks can present buying opportunities.
  • We are monitoring liquidity in the market given that a highly uncertain macro backdrop makes it difficult for investors to demonstrate conviction in their views.

"Volatility is here to stay, but given the solid backdrop for munis, we would view any pullbacks as buying opportunities."

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.

What's in the Stars for Munis?

Point of View with Peter Hayes
The municipal bond market posted a return above 9% in 2014, as the stars aligned in spectacular fashion for the asset class. Peter Hayes, Head of the BlackRock Municipal Bonds Group, offers his outlook for 2015.

Investing involves risk, including possible loss of principal.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Some investors may be subject to federal or state income taxes or the Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable.

A portion of the income may be taxable.

Index returns are for illustrative purposes only.  Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of February 4, 2014, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass. Any investments named within this material may not necessarily be held in any accounts managed by BlackRock. Reliance upon information in this material is at the sole discretion of the reader.

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