So far defying predictions for a second straight year of losses, municipals are ahead 3.6% YTD, their best start to the year sine 2009's 4.4% advance.
Supply remains tight, says fund manager Guy Davidson, but the big surprise has been stronger-than-expected demand. "Yields are still low by historical standards, and people are scratching their heads trying to figure out where to go now.”
This quarter's big gains come even as munis lost a bit of value in March, but a BAML study shows municipal paper rebounding in April 11 of the 15 times since 1989 when March has been in the red. There may be good reason for this: March tends to be a big month for issuance, 2nd only to June. Localities issued $27B this month, about double that of February.