October 26, 2021
While markets can be unpredictable, trends can help provide insight into potential cyclical opportunities. Historically within the municipal market, we have seen three distinct periods of seasonal trends that typically occur in March, June, and October. During these periods, municipals tend to underperform due to unfavorable supply-demand technicals. The positive performance seen in June 2020 was driven by heavy reinvestment cash into the municipal market, which turned the average monthly return slightly positive.
Municipal bonds' seasonality
Bloomberg Municipal Bond Index – average monthly returns over a 20-year period (2001-2020)
Source: Barclays Live, as prepared by Delaware Funds by Macquarie.
The performance quoted represents past performance and does not guarantee future results.
Chart is for illustrative purposes only.
What this means for investors
These seasonal periods of negative average monthly returns can position municipal fixed income as an attractive buying opportunity. This year could be one of those opportunities. With significant policy and legislative actions under negotiation in Washington, many of which may impact the technical side of the municipal market, we think volatility is likely, which may result in a cheapening in rates and widening of spreads. If higher yields do result, we view this as an opportunity for municipal investors to add to their municipal allocations.