• Municipal bonds were down modestly in April amid increased interest rate volatility and a pick-up in primary issuance.
  • We view volatility-induced pullbacks as buying opportunities and are looking to take advantage of some of the recent weakness in both rates and credit spreads.
  • Credit fundamentals generally remain strong, but state revenue growth is slow and could make for a challenging budget season.

"Relative to Treasuries, municipal bonds offer compelling value on a risk-adjusted basis."


Municipal bonds lost ground in what was an atypical April. The performance was reasonable, however, given the crosscurrents affecting the market. Increased rate volatility coupled with elevated supply of muni bonds and seasonally weak demand all contributed to the weaker tone. While the Fed could easily be cited as the culprit in the rate volatility, the more likely offenders came in the form of higher inflation expectations in the U.S., a stabilizing dollar and oil price, and an upturn in European interest rates. Markets were reacting to mixed economic signals.

We saw $37.8 billion in muni bonds issued in April, which was well above historical norms for the month (the five- and 10-year averages being $31 billion and $33 billion, respectively). Supply is now up 58% year-over-year. Notably, we saw a meaningful uptick in new-money issuance in April. 42% of April’s issuance was new money rather than refundings, which had represented the preponderance of supply in the first three months. Demand, meanwhile, was weak leading into tax time and followed by a recovery after April 15. Most of the outflows were in municipal money funds and not the core of the muni market. For the month, munis saw $691 million in inflows, bringing the year-to-date (YTD) figure to roughly $10.1 billion.

With Q1 already behind us, Peter Hayes reinforces the three tips investors should keep in mind throughout the rest of 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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