Jessica Lerner

"Bond yields are plunging [Thursday] as rate cut expectations soar following this morning's consumer price index release, which depicted the first month of deflation since July 2022," noted José Torres, senior economist at Interactive Brokers.

Large-scale issuers, including state-level transportation authorities, counties and sales tax entities, have "planned volume to coincide with implied demand," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Overall, demand is "high," an ongoing tailwind for munis, along with solid fundamentals, Nuveen strategists said.

The new-issue calendar rises to $9.175 billion next week, with $6.089 billion of negotiated deals coming to market and $3.086 billion of competitive deals on tap.

"The forces of municipal fundamental and technical measures are setting up a reconciliation against higher UST yields," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

July will see $35.2 billion of redemptions, down 13% month-over-month but still 35% higher than 2024's monthly average of $27 billion, said Pat Luby, head of municipal strategy at CreditSights.

"With a nonexistent new-issue calendar and heavy dealer balance sheets, we expect the muni market to get a bit 'grabby' over the next few weeks," AllianceBernstein strategists said.

"While valuations are still historically tight, the extra demand through the summer should help support the muni market in the coming weeks," Birch Creek strategists said.

In the first half of 2024, winding-down federal aid, a resurgence of Build America Bond refundings and election uncertainty have contributed to the surge in issuance, said James Welch, a portfolio manager at Principal Asset Management.

Municipal bond mutual funds saw outflows as investors pulled $498 million from funds after $16 million of inflows the week prior, according to LSEG Lipper. High-yield funds still saw inflows.

June supply appears to be finishing above $45 billion, the third highest monthly total in the last 10 years, said Kim Olsan, vice president of municipal bond trading at FHN Financial.

In 2024, variable rate (short put) issuance is up 6.4% increase year-over-year, LSEG data shows. Few expect issuance to return pre-financial crisis levels.

Demand for the increased supply has been "solid" if nearly largely reliant on income-oriented small lot buyers, noted Municipal Market Analytics, Inc. Partner Matt Fabian. Through last week, buyers continued to be separately managed account/retail in size.

Total volume currently stands at $224.13 billion, up 38.5% from $161.848 billion at this time last year. As the end of the first half approaches, several firms are revisiting their supply projections for the year, given the growth so far this year.

With the "pretty good run" month-to-date, it would not be unexpected to see "the market take a breather, and with a large calendar this coming week, it may again move sideways," said AllianceBernstein strategists in a weekly report.

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Municipal bond mutual funds saw small inflows as investors added $16.4 million to the funds after $154.4 million of inflows the week prior, according to LSEG Lipper.

The state's new law requires companies like investment banks to provide written verification of their positions, part of a trend among similar bills aimed at preventing Wall Street banks from lying about their positions, said a firearms industry lobbyist.

Issuance this year is "well on its way" to $450 billion, mostly from the tax-exempt supply of new money projects, said Matt Fabian, a partner at Municipal Market Analytics.

Despite some slight weakness Monday, munis continued an "impressive start to June," with yields falling 10 to 13 basis points last week, Birch Creek strategists said.