(Bloomberg) -- With the bond market still struggling to recover from some of the worst losses in decades, tax-exempt debt delivered what counts these days as good news: In March, investors didn’t lose so much as a penny.

In turns out, they didn’t make anything either: The municipal bond market returned exactly 0.00%.

Investors will be closely watching economic data for clues as to when the Federal Reserve may begin cutting rates, which will help determine if the muni market’s flat returns extend into this month. An uptick in tax-exempt issuance to refinance old Build America Bonds could improve muni performance. 

“If we see a continued surge of tax-exempt issuance, that will stimulate some interest, bring some buyers in and hopefully ramp up the animal spirits,” said Pat Luby, a municipal strategist at CreditSights Inc.

Last month marked only the second time since 1980 when munis have returned 0.00%, according to data compiled by Bloomberg. The flat returns trailed corporate bonds and Treasuries, which both saw positive performance in March.

The first quarter saw a slew of stronger than expected economic data. And last month, Fed officials maintained their outlook for three interest-rate cuts in 2024. On Wednesday, Fed Chair Jerome Powell reiterated his expectation that it will likely be appropriate to begin lowering rates “at some point this year.” He and other officials have repeatedly said they are in no hurry to cut rates, and that the central bank’s action will depend on incoming data.

“That delay of the first move by the Fed removes some of the incentive for aggressive buying in March that participants were probably waiting for,” Luby said. 

Read More: Munis Put Up a Goose Egg for March, But Devil is in the Details

Issuers also brought a slightly elevated new issue supply to the market, totaling about $35 billion in March. Those bonds “were well received but caused the market to be down a little,” said Dan Solender, head of municipal debt at Lord Abbett & Co. 

Year to date, issuers have sold more bonds than last year, and are roughly on track with 2022, according to data compiled by Bloomberg. Supply could get a further boost if more issuers decide to replace outstanding taxable Build America Bonds with tax-exempt debt. 

March saw a bear flattener in the muni curve, according to Sweta Singh, portfolio manager at City Different Holdings. 

“Even though supply was robust for the month, the demand side was affected by seasonal tax selling,” she said. Looking ahead, “we will have to really see how the supply demand dynamic plays out,” Singh said.

--With assistance from William Selway.

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