Jessica Lerner

Bond volume fell slightly, as volatility, higher interest rates, falling pandemic aid and slower economic growth kept issuers on the sidelines.

Issuance has fluctuated throughout the years since the financial crisis, following interest rate changes — rising when rates rise and falling when rates fall — but the totals have come in well below $15 billion every year since 2012, save for 2017 when $15.234 billion was sold.

"Tight underwriting spreads in 2023 followed, for the most part, a well-entrenched trajectory that has backdropped the primary municipal market for years, and so the negligible bump in spreads does not come as a surprise," said Jeff Lipton, managing director of credit research at Oppenheimer.

This decision will accelerate foreign buyers' reduced presence in the muni market, said Vikram Rai, head of municipal markets strategy at Wells Fargo.

Municipal bond mutual funds saw the second week of outflows, with LSEG Lipper reporting $142.2 million of outflows for the week ending Wednesday. High-yield funds saw inflows.

Despite losses, munis are still outperforming USTs and corporates on a month-to-date and year-to-date basis, noted Cooper Howard, a fixed-income strategist at Charles Schwab.

The consumer price index number further complicates market expectations of Fed rate cuts and muni investors may want "to keep their powder dry" until they have a better idea of the Fed's timing, said CreditSights' Pat Luby.

The muni market will see "continued strength," said Wesly Pate, senior portfolio manager at Income Research + Management, largely due to a a dearth of new-issue supply.

This volatility can be seen in the whipsawing figures from the SIFMA Municipal Swap Index Yield over the past few months, but in January in particular.

Municipals were steady to improved in spots in secondary trading as another day of sizable new-issues were well-received in the primary market.

Some participants on the Street estimate that SMAs hold as much as $1.5 trillion of munis while others peg it closer to $1 trillion to $1.3 trillion.

The SIFMA Swap Index fell to 3.24% Wednesday, down 50 basis points from 3.74% from the week prior, and 131 basis points from 4.55% it hit on Jan. 24 as swings continued in the VRDO market. Tax-exempt money market funds reversed course to see inflows of almost $4 billion.

The volatility in USTs is giving municipals a difficult run to start February. The asset class lagged the selloff and outperformed the recent rally, which points to its resiliency — but those moves do not come without challenges.

Triple-A scales saw yields rise 10 to 13 basis points following a second day of UST losses as muni investors await a robust new-issue calendar.

The goal behind SOLVE's new product is to turn raw data into data-driven insights through AI, with munis being the first step before expanding to other key asset classes in fixed income, said Eugene Grinberg, co-founder and CEO of SOLVE.

The primary saw strong demand with the Triborough Bridge and Tunnel Authority doubling the size of its deal to $1.6 billion.

Interval funds include venture capital, real estate, insurance and credit have seen growth over the past several years.

Fed Chair Jerome Powell said cuts are likely this year but are not guaranteed. He added that the Fed is looking for more signs that inflation is moderating. "We are prepared to maintain the current target range for the federal funds rate for longer if appropriate."

Issuance for the month is slightly above the $27.666 billion 10-year average, according to LSEG Refinitiv data.

"Yields are attractive, and there's going to be a lot of demand and there's not going to be a lot of bonds," said Scott Diamond, co-head of the municipal fixed income team at Goldman Sachs.