Municipal bonds sales reached a record high issuance of $52.5 billion in October after riding on a year of great returns, but supply could soon scale back. 

October marks the biggest month of issuance since records began to be reported in the 1980s, Reuters reports. The last month that was comparable in terms of municipal bond issuance occurred in April 2008, when $51.4 billion was sold.

“We’re pretty bullish on the municipal market,” Ron Schwartz, a senior portfolio manager at Seix Investment Advisors, told ThinkAdvisor. “We think that this is going to be an asset class that is going to outperform in the years to come.” 

Another expert credits the presidential election and the prospect of the Federal Reserve raising rates in December for the record month.

"We had three weeks of exceptionally large issuance and there were a couple of factors driving issuers into the market," McDonnell Investment Management Senior Portfolio Manager Jim Grabovac told The Bond Buyer. "You have the presidential election plus an increasing probability the Federal Reserve will raise rates again in December."

Given the large supply of issued bonds, municipal bonds have decreased in price, according to TheStreet and ThinkAdvisor. Schwartz, who manages the RidgeWorth SEIX Investment Grade Tax-Exempt Municipal Bond Fund, told TheStreet that issuers are working hard to raise capital in this period, and he told ThinkAdvisor he is recommending people buy municipal bonds at this time. 

The record month of issuance caps off nearly a year of bullishness for municipal bonds. As of October 15, municipal bond mutual funds had shown 53 weeks of inflows, the Associated Press reports. California ($57.38 billion), Texas ($48.44 billion), New York ($39.49 billion), Pennsylvania ($18.49 billion) and Florida ($16.23 billion) are the top five issuers of municipal bonds among states in the year to date, according to The Bond Buyer.

Over the past two years, municipal bonds’ low interest rates have attracted foreign investors to the municipal bond market, despite them not qualifying for the tax-related advantages U.S. investors enjoy, according to the AP. 

“Munis have been the darling asset class of the past two or three years,” Chris Alwine, head of Vanguard’s municipal group, told the AP.

However, some believe this record issuance could scale back in the coming months.

The iShares National Muni Bond exchange-traded fund — the largest municipal bond ETF by assets — reported a slim loss in July for the first time in 10 months, the AP reports. While it posted a gain in August, it recorded losses in September and October, too.

Schwartz believes the supply won’t be “overwhelming” come December, according to ThinkAdvisor.

Nevertheless, he is confident that while issuance may slow, demand for municipal bonds will not.

“We just think the demand factor is going to be strong, remain strong,” he told ThinkAdvisor. “Maybe it’s not going to have flows like we did this year, but still individuals are going to continue to invest in municipal bonds.”

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