Jessica Lerner

The back half of July is starting "much like the front half with ongoing UST volatility and municipal supply staying in the forefront," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Long-duration and shorter-coupon munis saw ample demand last week. Investors, believing rates will fall as early as the first part of next year, continue to lock in long-bond yields, Nuveen strategists said.

Bond Buyer 30-day visible supply climbs to $13.42 billion while the new-issue calendar is led by a $1 billion-plus New York City Transitional Finance Authority future tax-secured subordinate deal.

Municipal bond mutual fund outflows continued as Refinitiv Lipper reported investors pulled $136.174 million from the funds for the week ending Wednesday following $855.719 million of outflows the week prior.

"The bond market finally got the relief from inflation it was hoping for," said Bryce Doty, senior vice president and senior portfolio manager at Sit Investment Associates. 

With the third quarter officially under way, municipal bond experts say the tax-exempt market is poised for better performance and stronger market technicals ahead in the second half.

Nick Venditti of Allspring Global Investments talks about evolving demand components, compelling yields and expectations for second half performance. Jessica Lerner hosts. (24 minutes)

This week should see a return to more normal supply, which might be a little higher than average for the year so far, said Daniel Solender, partner and director of tax-free fixed income at Lord Abbett & Co.

Municipal Capital Markets Group, Columbia Capital Management and Caine Mitter and Associates moved into the top 10, while Baker Tilly Municipal Advisors, Stifel Nicolaus & Co. and Swap Financial Group were ousted.

Most top 10 issuers for 1H are from New York and California, with three from New York and three from California.

For the coming week, investors will be greeted with a new-issue calendar estimated at $7.282 billion.

Municipal bond mutual fund outflows intensified as Refinitiv Lipper reported investors pulled $855.719 million from the funds for the week ending Wednesday following $25.331 million of outflows the week prior.

The Investment Company Institute reported investors pulled $136 million from municipal bond mutual funds in the week ending June 28, after $338 million of inflows the previous week.

"Lower volumes, lighter primary issuance, and heavier reinvestment cash flows are likely going to contribute to a continued bout of muni relative performance," said Birch Creek Capital strategists.

For the coming week, investors will be greeted with a new-issue calendar estimated at $304.5 million. This marks the lowest week of issuance in 2023.

Total volume for the month was $34.436 billion in 744 issues, down from $37.775 billion in 984 issues a year earlier, according to Refinitiv data.

Triple-A yields rose one to five basis points, depending on the scale, as secondary trading showed cheaper prints and some new-issues had to be cheapened to clear the market while USTs saw larger losses of up to 16 basis points on the three and five year.

With the first half of the year ending on Friday, municipal sources say the second half of the year will be off to a good start.

While supply has started to pick back up with an outsized primary market calendar this week, it's still not enough to meet demand, said Cooper Howard, a fixed income strategist at Charles Schwab.

Despite a slow start to the week, "buyers are becoming more constructive, and there's increased buying going on," said Pat Luby, a CreditSights strategist.