Market Braces for Seasonal Glut of Supply

The $3.7 trillion municipal-bond market is heading for its worst monthly performance since June. If the past decade is any guide, October may be even worse.

Munis on average have lost 0.41 percent in October since 2001, the biggest decline for any month, Bank of America Merrill Lynch indexes show. This month, local-government bonds have gained about 0.21 percent, the least since they lost 0.07 percent in June.

With muni mutual funds adding the fewest assets since April and localities issuing the most debt in three months, that trend is poised to continue, said John Dillon, chief municipal-bond strategist at Morgan Stanley Smith Barney.

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