Frank Gargano

Interest rate volatility and the Trump administration have municipal market professionals worried that funding goals won't be met.

The first part of exclusive research from The Bond Buyer finds that most industry optimists say funding needs will be met sometime after 2035.

"While the shutdown will eventually be resolved, present circumstances may catalyze tactical investment opportunities as a way to capture even more compelling yield and income opportunities," said Jeff Lipton, municipal market intelligence analyst for The Bond Buyer.

October has historically not been "particularly kind to the municipal market, as it tends to be one of the heavier supply months of the year," said Daryl Clements, a portfolio manager at AllianceBernstein.

The muni market may be shaken by a government shutdown, driving short-term volatility and wider spreads, said James Pruskowski, a public finance strategist.

Retail offerings from California and Connecticut led the market Wednesday.

Secondary selling pressure and the larger calendar weighed on the market Tuesday.

"On a month-to-date basis, AAA munis have outperformed Treasuries across the entire curve. … This outperformance can be attributable to an improvement in market technicals," said Daryl Clements, a portfolio manager at AllianceBernstein.

As the "slope of the municipal yield curve remains extremely steep and long bonds are cheap relative to U.S. Treasuries," Daryl Clements, a portfolio manager at AllianceBernstein, predicts "long municipal bonds have a long way to go until they are considered fair value."

Tax-exempt munis, supported by USTs, are having a very good month as MMD yields are down 30 to 35 basis points out long, and both the investment-grade and high-yield indices are seeing gains of more than 2% month-to-date, Barclays strategists led by Mikhail Foux said.