Why BlackRock says November could be the best month this year for municipal bonds

BlackRock anticipates a robust performance for municipal bonds through year-end and into 2025, driven by historically strong fourth-quarter returns, an expected slowdown in November issuance, and favorable technicals. Patrick Haskell, head of BlackRock's municipal bonds group, highlights that munis remain undervalued, offering attractive tax-exempt yields—potentially nearing 6% tax-equivalent for high earners—and compelling valuations relative to taxable alternatives amid expectations of continued Fed policy easing. The firm is implementing a barbell yield-curve strategy, favoring high-quality transportation, housing, and corporate sector munis, including prepaid gas munis and health systems, while selectively investing in high-yield segments.

Analysis

BlackRock, a significant manager of over $181 billion in municipal assets, forecasts a robust performance for municipal bonds through year-end and into 2025, driven by historical trends and favorable technicals. November has historically delivered a 1.26% average total return over the last decade, with the fourth quarter being the top-performing period. This outlook is further supported by an anticipated 31% month-over-month decline in November issuance, which is expected to strengthen market technicals.

Despite recent strength, BlackRock's head of municipal bonds, Patrick Haskell, asserts that municipal bonds remain undervalued, presenting a compelling entry point for investors. The iShares National Muni Bond ETF (MUB) currently offers a 3.33% 30-day SEC yield, translating to a tax-equivalent yield nearing 6% for high-tax bracket earners. This valuation advantage is further bolstered by expectations of continued Federal Reserve policy easing, maintaining a favorable interest rate environment.

BlackRock employs a barbell yield-curve strategy, prioritizing high-quality municipal issuers in transportation, housing, and corporate sectors, including suburban local governments and school districts. The firm is overweight on prepaid gas munis, housing bonds, and national/large regional health systems, while selectively engaging in high-yield munis. Key selection criteria include strong fund balances, diverse tax bases, and manageable debt, alongside an assessment of legal and contingent liabilities.

Key Decisions for Investors

• Investors should consider increasing exposure to high-quality municipal bonds, given the strong historical Q4 performance, anticipated supply slowdown, and attractive tax-equivalent yields, particularly for high-tax bracket individuals
• Evaluate issuers based on strong fund balances, diverse tax bases, and manageable debt, aligning with BlackRock's selection criteria for high-quality munis
• Monitor Federal Reserve policy for continued easing, which is expected to sustain a favorable interest rate environment for munis
• Consider specific sector allocations, such as transportation, housing, and prepaid gas munis, where BlackRock identifies overweight opportunities