After the U.S. shutdown scare, municipal bonds fell behind the rally in Treasuries. As a result, the widening yield ratio could now signal a buying opportunity for muni bond exchange traded funds.
Municipalities saw an increase in borrowing, which drove local bonds to the cheapest in almost two months against Treasuries, with yields on 10-year munis reaching about 111 percent of that on federal debt securities this week, reports Brian Chappatta for Bloomberg.
The $3.7 trillion muni market has generated a 0.1% return this month, compared to 0.6% for Treasuries.
“Given the elevated muni-Treasury yield ratios and a large increase in supply, this presents itself as an opportunity for the municipal investor,” Gary Pollack, head of fixed income for the Deutsche Bank unit, said in the article.
Despite the recent flurry in borrowing activity, municipal bond supply could ebb and bolster the market. According to Bank of America, muni debt gained in the a year’s final three months in seven of the past 10 years. Phil Fischer, head of muni research at Bank of America, and Chris Mauro, head of muni strategy at RBC, project 2013 muni issuance of $325 billion to $330 billion, which would be the second-smallest in the past five years.