Jessica Lerner

The market is seeing a supportive environment for munis, said Nisha Patel, managing director of SMA Portfolio Management at Parametric.

"With rates volatility seemingly subsiding in the past few weeks, we could start to see outflows decrease and demand flow back into munis," according to AmeriVet Securities' Jason Wong.

Investors will be greeted Monday with a new-issue calendar estimated at $6.018 billion with a few bellwether, triple-A names coming from Loudoun County, Virginia, Frederick County, Maryland, and Columbia University with sizable deals.

Outflows were seen again from municipal bond mutual funds, though they lessened this week as Refinitiv Lipper reported $101.664 million was pulled as of Wednesday.  

The CPI numbers coming in pretty much as expected "was a relief" to the markets, with the bond market rallying after the release, said Luke Bartholomew, senior economist at abrdn.

Despite the attraction for new issues, sources said there is still uncertainty overall in the municipal market stemming from the regional banking crisis.

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Now that there is more "clarity from the Fed on the path of interest rates, both investors and issuers may start to move off the sidelines," said Daniel Close, head of municipals at Nuveen.

Investors will be greeted Monday with a new-issue calendar estimated at $7.588 billion.

Outflows from municipal bond mutual funds intensified as Refinitiv Lipper reported $846.116 million was pulled from them as of Wednesday after $92.055 million of outflows the week prior. 

The secondary was quiet and the sole deal of size came from a $400 million-plus competitive water and sewer loan from Portland, Oregon. The recent rise in yields makes for more compelling levels.

"The market is expecting a 25 basis point rise in the Fed funds rate, but more importantly, investors are waiting for the comments for a better idea of what to expect going forward," said SWBC Investment Company's Roberto Roffo.

"Investors' jitters in the lead up to next week's Fed meeting resulted in some large macro market moves and a rise in volatility," noted BofA Securities strategists in a weekly report.

Total volume for the month was $30.599 billion in 577 issues, down from $40.423 billion in 900 issues a year earlier. Total issuance year-to-date is at $107.626 billion, falling 25.2% from the same period of 2022.

Taxable municipal issuance has decreased 40.9% year-over-year, but returns so far in 2023 are outperforming tax-exempts and high-yield.

Outflows from municipal bond mutual funds receded as Refinitiv Lipper reported $92.055 million was pulled from them as of Wednesday after $2.876 billion of outflows the week prior. 

The Investment Company Institute reported investors pulled $377 million from to mutual funds in the week ending April 12, after $229 million of inflows the previous week.

"We're in a market right now where there's heightened volatility in prices, inconsistent pace of supply, and for investors who need to put money to work, muni ETFs continued to play that role," CreditSights' Pat Luby said.

One underwriter called it a "violent inversion," given that the short end of the municipal and Treasury yield curves were so dislocated.

The "weakness in the secondary market will carry over into this week, which may lead to higher yields and wider spreads in the primary market," said CreditSights strategists Pat Luby and Sam Berzok.