• Muni Nation

    High Level View

    Jim Colby, Portfolio Manager
    June 10, 2014

    Much of the muni commentary these past several days has focused on what, to some, may have been the surprising and meaningful performance of the asset class as measured by the Barclays Municipal Bond Index: 5.91% year-to-date (YTD) as of 6/4/14.

    I believe the primary driver of performance this year has been the imbalance of newly issued municipal bonds coming to market to meet demand. The forward 30-day visible supply may now have reached what I believe to be meaningful levels (see chart). The rise in the market has taken a pause to seemingly await the arrival of the new bonds.

    30-Day Visible Municipal Bond Supply (as of 6/4/14) 

    • Total Supply on 6/4/14: $13.6 billion
    • 2014 YTD Highest Supply (on 6/3/14): $15.0 billion
    • 2014 YTD Lowest Supply (on 3/7/14): $1.9 billion

    30-Day Visible Municipal Bond Supply

    Source: Bond Buyer. The 30-day visible supply is compiled daily from The Bond Buyer's Competitive and Negotiated Bond Offerings calendars. It reflects the dollar volume of bonds expected to reach the market in the next 30 days. Issues maturing in 13 months or more are included.

    If you remember a year ago, the "Taper Tantrum" pushed rates higher by almost 100 basis points (1%), just at the suggestion of the Federal Reserve slowing its bond buying program. I don't currently see evidence or trends to suggest we will see that kind of jump again in the near term.

    The municipal bond market, in my opinion, continues to offer potential value across the yield curve and the credit spectrum. I believe this has been recognized by institutional buyers. However, in my opinion, the significance of the tax exemption often goes underappreciated when investors get caught up with "trends" or secular market moves.

    The Barclays Municipal Bond Index covers investment-grade municipal bonds with a nominal maturity of one or more years.



    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 in 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 that MUNI NATION® represents the opinions of the author and these opinions may change at any time and from time to time. 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.

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

    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. 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 vaneck.com. Please read the prospectus and summary prospectus carefully before investing.

    Van Eck Securities Corporation, Distributor
    666 Third Avenue
    New York, NY 10017