We have long written about the two periods when the municipal bond market organically generates the most cash flow into the market — the January / February period and the June / July period. These are the periods when most municipal bonds pay interest and mature. Also, the municipal market tends to screech to a halt between Thanksgiving and New Year's, as well as during the summer vacation periods of July and August.
So, the next question should be: When is the most opportune time to buy municipal bonds? Answer: In the second and fourth quarters of the year (more specifically, May and June, followed by the weeks around the month of October in the fall).
Let’s look at some data to test this thesis.
Supply Side (New issuance of Municipal Bonds)
The following table shows the average monthly issuance of municipal bonds for various periods (and their rankings):
As you can see, October ranks as first (3 times) or second (one time) in terms of monthly issuance of municipal bonds over 20 years, 10 years, five years, and three years (the months of January and February rank at the bottom of the rankings for the same periods).
Demand Side (Cash flow of combined municipal bond mutual funds and ETF’s)
The following table shows the combined cash flows into municipal bond mutual funds and ETF’s from 2019 - July 2023 (with their rankings):
January and February rank at the top of the distribution regarding positive (or least negative) cash flows. September and October rank near the bottom in the distribution.
Generally, the period between Labor Day and Thanksgiving generates very high levels of new issue supply of municipal bonds and the lowest levels of investor demand. High supply and low demand is a formula for opportunity for the discerning investor.
If you’re interested in leveraging that opportunity yourself (or for your clients), please get in touch with our fixed income portfolio managers Chris Ryon or Sweta Singh. They can answer any questions you may have about the municipal bond market.
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