Don’t blame the summer selloff in municipal bonds entirely on rising Treasury yields and a Fed with an itchy trigger finger. It’s also a matter of supply, said Mark Paris, head of municipal bonds at Invesco . “The last three months have been about heavy new issue supply hitting the market,” said Paris. “This will even out as we get closer to the election and after that the muni market will strengthen.” Paris, who co-manages the Invesco Municipal Income Fund , added that December and January tend to be big reinvestment months, but “we have to get there.” The Invesco Municipal Income Fund is up 3.5% thus far in 2016, according to Morningstar. The $3 billion fund has returned an average of 6.3% annually over the past three years, outpacing 70% of its rivals in Morningstar’s long-term municipal bond category. The trailing 12 month yield for the fund is 4.07%, according to Morningstar. At the end of the second quarter, the fund was overweight the healthcare and industrial sectors compared to its peers, and market-weight transportation. In terms of maturity, 36% of the fund’s bonds matured 20 to 30 years out, according to Morningstar. New issuance may be weighing on municipal bond prices, however, international buyers have been helping on the demand side. Paris said foreign buyers like muni yields, especially compared to negative interest rates in some developed countries. “They are comparable to Treasuries even without tax advantages,” said Paris. “They like the safety and infrastructure story.” Munis continue to be a “pure play” on the U.S. economy and have been insulated from global macro news, according to Paris, who favors essential service revenue bonds. He said the technicals continue to be strong and the U.S. economy’s steady growth is good for the muni fundamental story.
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