October 2019 -Ways to Invest in Municipal Bonds and What is Right for You.
The municipal market finished the month with minimal pricing volatility and appearing like all is calm. Underneath, the new issuance calendar is growing, led by refunding, new money, declining demand, and highest default activity since 2015. We are thinking the next 30 to 60 days will bring some opportunities to muniland.
Last month we cited the increased use of SMA’s versus mutual funds by individual investors. We thought we would review the options available to invest in municipal bonds and help our readers understand why we think SMA’s are becoming more popular. For full disclosure, MainLine West only offer SMA’s and not mutual funds or ETFs. Some could say we are sharing this review to prove we are right and want more business, we say we offer SMA’s because they are right. Either way, we recommend the “Joe & Maggie Smith Tax-Free Fund”.
Muni Market Review
A quiet month in market moves, but issuance and technicals are changing. Looks like the next 30 to 60 days could get a little “choppy” in muniland. Highlights as follows:
- Muni yields on averaged increased slightly, with the curve steepening from -8 to 7 bps.
- Taxable yields moved roughly the same -2 to 7 bps.
- Supply continues to accelerate, as refunding and new money is up over 2018. Details as follows:
- 2019 year-to-date versus 2018 is up 14% and is now equal to the five-year average level of issuance.
- 2019 refunding is up 28% from 2018, with 40% of it being issued as taxables. More information on this in the below “Market & Credit News Update”.
- Analysts are forecasting this trend to continue until year-end and into 2020.
- Year-to-date muni distress and impairments are up at the highest level since 2015. A report from Municipal Market Analytics (MMA) shows the following:
- 22% higher notices of financial problems year-to-date versus 2018.
- 10 of these are in Texas, 6 in Pennsy, and 5 in Colorado and Arizona.
We are prepared to invest customer cash balances and start Fund VI between now and year-end, as we think there could be some opportunities as supply continues to increase, fund inflows continue to slow down, and politics/credit news could cause some alarm.