Skip directly to Accessibility Notice
  • Muni Nation

    Where Was the 2018 January Effect?

    Michael Cohick, Senior ETF Product Manager
    February 14, 2018

    The "January effect" is based on the idea of a seasonal increase in asset prices in January, generally driven by supply-demand dynamics. This year it was nowhere in sight for the muni market. However, signs leading up to the start of the year had suggested the likelihood of a strong January effect, so we'll be watching to see how this plays out in the remainder of the year.

    In 2017, January got off to a racing start but came to a screeching halt by mid-month. The end result was the weakest January since 2013, with over $31 billion of municipal bonds being issued during the month, 40.0% above the 10-year average for the month.1

    And then December 2017 rolled around. As negotiations around the proposed new tax legislation continued, confusion and uncertainty reigned. What was going to happen with advanced refundings? What was going to happen with Private Activity Bonds2 (PABs)?

    Issuance Boom in December

    The result was issuance in the municipal market—really big issuance! At $62.5 billion, December 2017 beat the December 1985 record, and was 113% greater than the decade average.3 Heading into 2018, issuance looked like it had been absorbed, and there was word that, in anticipation of lean issuance in January, a number of players in the market had taken quantities of bonds onto their own books. (In the event, PABs were not repealed, but following the end of the year, issuers of tax-exempt debt no longer have the authority to advance refund bonds with tax exempt debt.)

    January Municipal Bond Returns: 2000 - 2018

    Chart of January Municipal Bond Returns: 2000 - 2018

    Source: Morningstar. Based on the Bloomberg Barclays Municipal Bond Index. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. For illustrative purposes only.

    As things turned out and despite various indications to the contrary (including anticipation for sparse 2018 supply), January 2018 performance was notably negative. Quite a rare outcome for municipal performance in the month of January. We feel lingering uncertainty about the impact of the new tax rules may have played a role, as market participants wait on the sidelines for more clarity.

    From our perspective, munis and their tax-exempt status still sustain their appeal in spite of the corporate and individual tax rate changes (See "Munis Remain Attractive Despite Tax Changes). As the impact of the tax changes continue to become more concrete, potential opportunities will likely become clearer.


    This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.

    VanEck does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service.

    Please note this represents the views of the author and these views 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-VanEck 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 VanEck. MUNI NATION is a trademark of Van Eck Associates Corporation.

    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.

    Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of a fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit Please read the prospectus and summary prospectus carefully before investing.