Jessica Lerner

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.

Investors will be greeted Monday with a new-issue calendar estimated at $7.208 billion, led by $1.3 billion of GOs from bellwether Washington.

Even though yields have moved to higher ground, some participants say that even cheaper levels are needed to bring about more retail conviction. Muni-to-UST ratios are still rich.

The top two municipal bond insurers wrapped $5.735 billion in the first quarter of 2023.

The Investment Company Institute reported investors added $229 million to mutual funds in the week ending April 12, after $83 million of outflows the previous week.

Municipal outperformance to UST ended Tuesday as triple-A yields rose 12 to 20 basis points as several new issues began pricing.

Muni yields were cut four to eight basis points, depending on the scale, while UST yields rose seven to nine basis points. Muni outperformance and rich ratios continue.

For long-term muni bonds, BofA strategists noted that macro market and supply/demand conditions "are dominating the picture, pushing the high-grade muni market to a relatively rich valuation versus Treasuries."

For the week ending Wednesday, outflows intensified as Refinitiv Lipper reported $255.794 million was pulled from municipal bond mutual funds after $91.713 million of outflows the week prior. High-yield saw inflows.

Strong demand in the primary market is leading to the oversubscription of many new issues. Municipals and USTs were better again as macroeconomic concerns pressure equities.

Most of the top 10 issuers are mostly from just two states, with four from New York and three from California.