Bank of America Expects Muni-Bond Supply to Rebound in October

Bank of America, the largest municipal-bond underwriter, anticipates a significant rebound in muni-bond supply, forecasting $58 billion in new issuance for October. This projection follows a slowdown in state and local government borrowing during September and suggests a potential increase in market liquidity and supply for institutional investors.

Analysis

Bank of America, the municipal-bond market's largest underwriter, projects a significant rebound in new issuance for October, forecasting a total of $58 billion. This forecast, from strategists Yingchen Li and Ian Rogow, signals a substantial increase in supply following a slowdown in state and local government borrowing in September. As a forward-looking indicator from a key market participant, this projection suggests a notable shift in market technicals for the upcoming month. An increase of this magnitude implies greater market liquidity and a larger inventory of bonds available for purchase, which will be a critical factor for institutional investors managing portfolio flows and allocations within the asset class.

Key Decisions for Investors

• Investors with capital to deploy in the municipal market should prepare for an active primary market in October, as the forecasted $58 billion in issuance will likely present a significant increase in investment opportunities.
• Portfolio managers should closely monitor the market's absorption of this new supply, as a substantial increase in issuance could place upward pressure on yields if investor demand does not keep pace.
• It may be prudent to review current portfolio holdings and identify potential buying targets, as the influx of new paper could present attractive relative value opportunities compared to the secondary market.