Seasonal Municipal Issuance Impacts Price Levels

 Perhaps more than any other actively traded market, municipal bond supply is seasonal in nature.   Primary issuance is generally concentrated in specific months to coincide with municipal issuers’ June 30 fiscal year-end and with bond issues maturing at the start of the next fiscal year on July 1.  Additionally, most municipal issues need public approval through ballot measures, so issuance will tend to be heavier in months following elections in March and November.  As a result, coupon and maturities tend to be at the end of the fiscal and calendar years.  As active participants in the municipal market, we are well aware of these supply/demand dynamics and the impact on both bond availability and pricing.  Typically, the last three months of the year are active in new issue supply, followed by a sluggish start to the new year, with limited issuance in January and February.  Not surprisingly, values are more prevalent in the waning months of the year, as issuers rush to get their deals priced before the year comes to a close.

 

Conclusion:  The present is an excellent time to put money to work in the municipal bond market.  Issuance remains strong, but will diminish as we reach the latter half of December and the early part of 2010.  Once the supply/demand balance tips, opportunities will be fleeting, resulting in higher prices and lower yields.

 

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Posted in Economic theories, Munis in the news

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