Skip directly to Accessibility Notice
April 23, 2019Munis in 2019: A Very Strong Start to the Year (5:07)
Jim Colby
Jim Colby
Portfolio Manager and Strategist, Municipal Bonds

James Colby, Portfolio Manager, looks at municipal bond performance, and flows into muni bond funds, in the first quarter of 2019. He follows this up with some thoughts on yield curve positioning and his outlook going forward.

Municipal Bonds Performance and Inflows


I think it's fortunate that we’re talking about municipal bonds on the heels of a really historic first quarter of 2019 in terms of inflows into the municipal space, strong performance, and the fact that the Federal Reserve recently has decided to hold rates steady for the foreseeable future.


The amount of inflows that have come into the municipal space for both muni ETFs, as well as mutual funds, year to date 20191… we've experienced nearly $20 billion in terms of inflows into the space, which is a record since they were keeping track of these numbers, since 1992.


In addition to the inflows, the record inflows, this year, the marketplace has been rewarded with great performance, great for the municipal marketplace, up already over 2% for investment grade2and 2.5% for municipal high yield3. Both of those evidence a very strong start for the municipal marketplace year to date.


I think what has also been brought to the municipal marketplace is investor clarity with regards to tax reform. In particular, investors are impacted by the $10,000 cap on state and local taxes and for those who are in high-tax states, it's a very significant issue.


Yield Curve Positioning


The question arises: what have investors done so far this year and what has the market said is the opportune place to put your money? Well, strategists will say that because the yield curve is steep, the place to be is that the long end of the curve. In fact, the evidence shows that investors are doing just that, putting something more than a billion dollars’ worth of assets to work at the long end of the marketplace.


To include municipal high yield because the curve is still steep, credit spreads are wide enough to offer investors opportunity, they have also put significant assets to work in municipal high yield. I think that relationship will continue to prevail probably through the next quarter of 2019.


Muni Outlook


The strong performance of municipals year to date, which previously I alluded to, is really driven by a feature that we've been touting and others have been mentioning for quite some time. That is, an imbalance between demand and supply. That equation continues and low issuance continuing into the first and likely the second quarter of 2019 will continue to offer a platform for munis to perform very well. We continue to see demand to the quality and to the numbers that we have experienced so far in the first quarter of 2019, I believe munis will continue to perform very well.


Coming off what appears will be a very strong first quarter performance from municipals, it's hard to project too far out in the future, but going into the second quarter, I don't see anything that is going to derail the current process of investor demand. Strong inflows coupled with an asset class that has delivered the results that investors want, measured against the opportunities of other asset classes.


So putting together a balanced, well-constructed portfolio in this environment remains important, remains a key feature that I think advisors and individual investors will continue to focus on.


For the remainder of the first half of this year, I think munis will continue to perform well, deliver that income, deliver that return that we've seen so far in the first quarter.

- - - - - - - - - -




1Data as of 4/1/2019, Lipper Municipal Bond Fund Flows.


2Data as of 3/21/2019, Bloomberg Barclays Municipal Bond Index.


3Data as of 3/21/2019, Bloomberg Barclays High Yield Municipal Bond Index.


Please note that Van Eck Securities Corporation (an affiliated broker-dealer of Van Eck Associates Corporation) may offer investments products that invest in the asset class discussed in this video.



The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Any discussion of specific securities mentioned in the video is neither an offer to sell nor a solicitation to buy these securities. 


All indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of a fund’s performance. Indices are not securities in which investments can be made.

The Bloomberg Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt municipal bonds with a maturity of at least one year. The AAA and BBB indices are sub-sets of this broader index. Bloomberg Barclays AAA Municipal Bond Index is a rules-based, market-value-weighted index measuring the non-investment grade and non-rated U.S. tax-exempt bond market.

Municipal bonds are subject to risks related to litigation, legislation, political change, conditions in underlying sectors or in local business communities and economies, bankruptcy or other changes in the issuer’s financial condition, and/or the discontinuance of taxes supporting the project or assets or the inability to collect revenues for the project or from the assets. Bonds and bond funds will decrease in value as interest rates rise. Additional risks include credit, interest rate, call, reinvestment, tax, market and lease obligation risk. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. Municipal bonds may be less liquid than taxable bonds.

The income generated from some types of municipal bonds may be subject to state and local taxes as well as to federal taxes on capital gains and may also be subject to alternative minimum tax.

Diversification does not assure a profit or protect against loss.


All investing is subject to risk, including the possible loss of the money you invest.  As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money.  Diversification does not ensure a profit or protect against a loss in a declining market.  Past performance is no guarantee of future performance.


No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Associates Corporation. © Van Eck Associates Corporation.


Van Eck Associates Corporation

666 Third Avenue, New York, NY 10017