According to Citigroup data, the state and local government debt market will shrink by $39.5 billion as bonds mature faster than they are being issued. Meanwhile, $44 billion in interest payments will be made to investors, contributing to some $84 billion available to be reinvested. Muni investors are basically in a position to enjoy the benefits of positive supply and demand dynamics.

According to Siebert Cisneros Shank & Co., the U.S. municipal bond market is expected to see the largest amount of debt ever maturing this June. In addition, if calls come in as projected, June 2017 will beat July 2012 as being the single largest month ever for money going back to investors.

On the other hand, only $105 billion of new tax-exempt muni bonds have been issued, or down about 15%.

We are in a position where investors will be cash heavy, which could increase reinvestment demand for munis, but there is not enough supply to go around. Consequently, the muni bond market could continue to find support as demand outstrips supply this summer.

“The supply demand imbalance means the potential for strong performance,” Michael Cohick, Product Manager at VanEck, told ETF Trends.

Consequently, Cohick suggested that investors should look to muni bond ETFs that could benefit the most from this imbalance, including options like the VanEck Vectors High Yield Municipal Index ETF (NYSEArca: HYD), which tracks high-yield or speculative-grade municipal debt, or the VanEck Vectors AMT-Free Intermediate Municipal Index ETF (NYSEArca: ITM) tracks intermediate duration investment-grade munis.

HYD shows a 0.35% expense ratio, a 7.49 year duration and a 3.84% 30-day SEC yield, or 6.35% taxable equivalent 30-day SEC yield. ITM has a 0.24% expense ratio, a 6.89 year duration and a 2.10% 30-day SEC yield, or a 3.48% taxable equivalent 30-day SEC yield.

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