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Reality Check - Friday, 05/30/2014

Total new municipal bond issuance in the U.S. was $102 billion year-to-date (YTD) ending May 23, 2014. Tax-exempt municipal bond issuance was $93 billion during the same period. The difference between the two was taxable municipal bond issuance.


Total Muni Bond Issuance

Taxable Muni Bond Issuance

Tax-Exempt Muni Bond Issuance













2014 (YTD)




Source: Bloomberg as of May 23, 2014.

As you look at the table above, consider overlaying this data mentally with the recent performance of the municipal indices (below). I believe this provides evidence that may support municipals until issuers regain their "mojo" and begin to bring new municipal bond deals to market in volume sufficient to sate current demand. So far this year, the issuance volume is well behind the average, even for the post-crash era, with no evidence, in my opinion, to suggest an immediate return to the "norm."

Barclays Index Total Return
As of 4/30/14

3 Months (%) 

YTD (%)

Municipal Bond Index



Municipal Long Bond Index



Municipal High-Yield Index



Municipal AAA Index



Municipal AA Index



Municipal A Index



Municipal BAA Index



Source: Bloomberg as of April 30, 2014.

The Barclays Municipal Bond Index was up 10.70% in 2011 and 6.78% in 2012, but -2.55% in 2013. To me, this suggests that issuance volume alone may not be the only driver of performance.

The reality check, as we head into the backstretch of the second quarter, is that I believe municipals could continue to perform if what appear to be improving underlying economies and credit characteristics at the state and local levels remain intact. In my opinion, both of these contribute to the demand on a market that seems to be starving for additional supply.

The Barclays Municipal Bond Index covers investment-grade municipal bonds with a nominal maturity of one or more years. The AAA, AA, A, BAA, and long indices are subsets of this broader index. The Barclays Municipal High-Yield Bond Index covers below investment-grade municipal bonds with a nominal maturity of one or more years.



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Please note that MUNI NATIONs that are written by Jim Colby represent his opinions and these opinions may change at any time and from time to time. MUNI NATION is not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. 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 Global. MUNI NATION is a trademark of Van Eck Associates Corporation.

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 the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.

Any discussion of specific securities mentioned in the commentary is neither an offer to sell nor a solicitation to buy these securities.

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.

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