Seasonal Spring Weakness May Mean Municipal Bond Opportunity

Municipal bond returns have tended to weaken in March and April. Ever wonder why? Yes, it’s related to tax season.

As investors prepare to pay taxes in April, they often raise cash by selling bonds or pausing reinvestments. Meanwhile, municipalities often increase issuance in the spring. The resulting temporary supply-demand imbalance can create modest pressure, weighing on municipal bond performance.

Historically, this dynamic tends to unwind after tax season, when investors often reinvest cash flows from bond maturities and coupon payments. The result can be a powerful technical tailwind beginning in late spring and accelerating into summer, which often helps bolster municipal bond performance after the seasonal soft period.