Municipal Monthly

Income carries munis to
positive month

Municipal bonds notched their ninth consecutive month of positive performance, thanks largely to carried income and a friendly Fed. BlackRock’s Municipals Team looks ahead. 

 


Municipal market highlights

  • Municipal bonds notched their ninth consecutive month of positive performance, thanks largely to carried income and a friendly Fed.
  • Supply continues to be well absorbed given a continued investor appetite for income and relative stability in a low-rate, high-volatility world.
  • Two states recently took steps to raise the hourly minimum wage to $15, a trend we are watching closely for its impact on state finances.

Market overview

The municipal market bucked the seasonal trend by posting a positive March, thanks in part to an accommodative Fed, which served to push rates lower (and bond prices higher). That said, most of munis’ performance for the month came from income and not from price return.

MANLX
National Municipal Fund High-quality municipal holding, commitment to credit research, balancing yield and risk.

Monthly supply, at $39.4 billion, was well telegraphed and readily absorbed by the market. While issuance was 12% below March 2015, it was still above both the five- and 10-year averages. Demand, as measured by fund flows, came in at roughly $6 billion, bringing the year-to-date (YTD) figure to an impressive $15 billion. Demand has been both robust and broad based. While the bulk of new money is entering long-duration funds, intermediate and high yield are also capturing a fair share. Strong flows have been seen in municipal exchange-traded funds as well.

One quarter into 2016, we maintain our outlook for a year not unlike 2015, when munis outpaced their taxable fixed income counterparts. 

Looking ahead, all but four states will aim to finalize budgets for the July 1 start of fiscal year 2017. On-time budgets may be difficult to negotiate in places, as we saw in Illinois and Pennsylvania this year. We continue to monitor the underlying health of state revenues given the challenges presented by a low-rate, low-return environment.

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Peter Hayes
Managing Director, Head of Municipal Bonds Group
Peter Hayes, Managing Director, is Head of the Municipal Bonds Group within BlackRock Fundamental Fixed Income and a member of the Fixed Income Executive Committee.
Peter Hayes
Managing Director, Head of Municipal Bonds Group
Peter Hayes, Managing Director, is Head of the Municipal Bonds Group within BlackRock Fundamental Fixed Income and a member of the Fixed Income Executive Committee.

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 April 7, 2016, 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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