Gary Siegel

Municipal to UST ratios hit highs earlier in the week, creating entry points for buyers to return to the market even as ratios fell on the week. The primary will see a smaller calendar at $5.4 billion.

Municipals were stronger again on the day, though, and new-issues were repriced to lower yields.

Buyers appeared to return to the market the past two sessions after the January correction moved yields and ratios higher. Secondary trading was up again on Wednesday and new deals were well-received.

Triple-A benchmark curves were bumped two to five basis points outside of five years as markets calmed to start February.

Market volatility has led to munis seeing the worst performance to start the year since 2018 and the biggest monthly losses since March 2020.

Short-end muni yields have risen more than 30 basis points on some triple-A scales over the past five trading sessions.

Returns are deep in the red with the Bloomberg Municipal Index at negative 1.85%, while high-yield sits at negative 1.81%.

The statement offered no surprises, but Fed Chair jerome Powell's refusal to denounce more hawkish scenarios hurt market sentiment.

Triple-A benchmarks were cut two to six basis points across the curve with the largest moves concentrated again on bonds inside 10 years, underperforming Treasuries once again.

Munis are expected to underperform for another few weeks as markets remain volatile and investors reevaluate allocations.

The combination of steady supply, heavy secondary selling and inconsistent demand have moved yields to their highest levels since May 2020.

Refinitiv Lipper reported $238.926 million of outflows, but $182.035 million of inflows to high-yield, reversing last week's outflows. New-issues faced concessions.

The Investment Company Institute reported a large drop of inflows into municipal bond mutual funds at $142 million in the week ending Jan. 12, down from $1.413 billion in the previous week.

The 2-, 5- and 10-year UST is higher than before the pandemic began as investors factor in a rate hike as soon as March.

Aoifinn Devitt, chief investment officer at Moneta Group, discusses the Federal Reserve’s plans to raise rates this year, whether this was truly a pivot in Fed thinking, how the market reacted to this change and will how they will respond when rates go up, how new members on the Federal Reserve Board could impact Fed plans and what this all means for investors. Gary Siegel hosts. (28 minutes.)

The largest deal of the week comes from the New York City Transitional Finance Authority with $950 million of exempts and $250 million of taxables.

The primary led Thursday's firmer tone while Chicago schools faced 10 to 20 bp penalties compared to price talk, signifying investors are being more selective and demanding more in the new higher-yield range.

Supply is beginning to roll in and the primary action on Wednesday provided more direction. ICI reports $1.4 billion of inflows.

Federal Reserve Board Chair Jerome Powell would not commit to timing for liftoff, stressing decisions would be data-based and the Fed will not allow inflation to become entrenched.

Pressures from inflation concerns and broader rising rates weigh on munis in the second week of 2022.