Jessica Lerner

After months of speculation, the firm confirmed it would "wind down" its municipal underwriting and market-making activities after a "broad-based review" of its muni business, according to a company memo.

Secondary trading showed clear strength across the yield curve Thursday with bellwether names trading up significantly from recent prints and original pricing levels. New-issues in the primary benefited with issuers repricing to lower yields and tight to triple-A curves.

Muni yields fell up to five basis points and dramatically underperformed USTs, as they are wont to do on FOMC days. Treasury yields fell as much as 29 basis points on the two-year and sent the 10-year down closer to the 4% threshold.

The weakness came as the new-issue calendar grew to $5.9 billion with the addition of a $900 million refunding deal from the Illinois State Highway Toll Highway Authority slated for Thursday. Bond Buyer 30-day visible supply sits at $6.95 billion.

Nuveen's marquee fund has seen the worst performance among the largest high-yield funds so far this year.

The new-issue calendar comes in just over $3 billion, of which is $847 million of state personal income tax revenue bonds from the Empire State Development in three competitive sales.

LSEG Lipper reported Thursday that investors pulled $144.5 million from muni mutual funds for the week ending Wednesday after outflows of $58.9 million the week prior.

Municipal mutual fund losses continued last week as the Investment Company Institute Wednesday reported investors pulled $475 million from the funds in the week ending Nov. 29 after $97 million of outflows the previous week.

"This week's new issue calendar should be well received," said Anders S. Persson, Nuveen's chief investment officer for global fixed income, and Daniel J. Close, Nuveen's head of municipals.

With a high of $450 billion and a low of $330 billion, no firms currently see issuance surpassing the records hit in 2020 and 2021.

This week's $9.4 billion calendar "should easily be absorbed as it is set to be the last full primary calendar of the year, given the Fed meeting the following week and then Christmas and New Year's holidays," Birch Creek Capital strategists said in a weekly report.

Pennsylvania leads the new-issue calendar with $2.1 billion of GOs in four series via the competitive market while the New York City TFA will bring another $1.4 billion of exempts and taxables.

Triple-A yields have fallen up to 95 basis points on the month, supply is up 7.8% year-over-year for November and the month is posting positive returns, which has, in turn, led to well over 3.50% returns year-to-date.

November's total volume rose 7.8% to $28.464 billion in 652 issues. For volume to top total 2022 issuance, December would need to see $44.329 billion of issuance.

The continued drop in yields has been "buoyed by a broad rate rally and intra-market fundamentals that simply have created more buyers than sellers," noted Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

While the muni market faces some headwinds, such as rich relative yields, near-term returns "are likely to be favorable for munis," said Cooper Howard, a fixed-income strategist at Charles Schwab.

"The November muni rally continues as month-to-date returns are now at 4.68%, pushing us further into positive territory for the year as year-to-date returns now stand at 2.35%," said Jason Wong, vice president of municipals at AmeriVet Securities.

"The market has had a solid tone to it recently even with the strong rally seen this month," Roberto Roffo, managing director and portfolio manager at SWBC Investment Management, said of the Nov. 10 rally where municipal yields in 10 years fell by as much as 40 basis points.

There had been speculation of layoffs in Citi's municipal division as several high-profile employees had been departing the firm over the last year, but sources said they have not heard of any muni layoffs.

The large drop in yields since the end of October can be reflected in sentiment that investors expect a potentially dovish Fed next year, and that a soft landing narrative gives them "permission to finally purchase the bonds they've been admiring," said MMA's Matt Fabian.