Jessica Lerner

Investors will be greeted Monday with a new-issue calendar estimated at $4.303 billion.

Outflows continued as Refinitiv Lipper reported $2.477 billion was pulled from municipal bond mutual funds in the week ending Wednesday after $1.946 billion of outflows the week prior.

Inflation remained the Federal Reserve's focus, but panelists were concerned about its intentions being misread, and none expect rate cuts in 2023, according to minutes of the latest Federal Open Market Committee meeting.

The muni market "is being teed up to enter 2023 from a relative position of strength," said Jeff Lipton, managing director of credit research at Oppenheimer Inc.

The muni market saw $384.086 billion of debt sold in 2022, nearly $100 billion less than $483.234 billion in 2021.

The value of the municipal bond market decreased by 4.3% in the third quarter of 2022, said Pat Luby, a strategist at CreditSights.

Outflows continued as Refinitiv Lipper reported $1.946 billion was pulled from municipal bond mutual funds in the week ending Wednesday after $3.094 billion of outflows in the prior week.

"With only a few days remaining in the year, muni bonds have had a tough year losing roughly 8.44% for the year," said Jason Wong, vice president of municipals at AmeriVet Securities.

"Although late-year volumes may be smaller, the market tone is holding firm on the premise of no supply/rollover demand — somewhat typical for December but noteworthy for the level of volatility the market has endured," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Nearly 20% of respondents to a HilltopSecurities high-yield team survey ranked liquidity and equity as their major concern for 2023.

Munis were unchanged Friday heading into the Christmas hiatus as light trading preceded the early market close, according to Michael Pietronico, chief executive officer at Miller Tabak Asset Management. 

Outflows continued as Refinitiv Lipper reported $3.094 billion was pulled from municipal bond mutual funds in the week ending Wednesday after $1.217 billion of outflows the week prior.

"A fade in muni prices came on the heels of sovereign debt actions, leaving ratios subject to some correction with just a few sessions remaining in 2022," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Secondary selling pressure was concentrated most heavily on the one-year Tuesday, but sellers pushed yields higher across the curve by five to seven. Bids wanteds were on the rise again with Monday's total hitting $2.122 billion.

"Yield levels are now notably higher throughout many sectors of the yield curve by a number of percentage points," said Morgan Stanley strategists Matthew Gastall and Daryl Helsing.

"This week will likely have been the last active week of the year, but it turned out to be quite eventful," according to Barclays PLC.

Outflows returned as Refinitiv Lipper reported $1.217 billion was pulled out of municipal bond mutual funds for the week ending Wednesday after $46.912 million of inflows the week prior.

The Fed chairman said he believes the Fed is getting close to a sufficiently restrictive level, but they're not quite there. While two good inflation reports are good, "there's still a long way to go to price stability."

The CPI report showed inflation had slowed to 7.1%, giving investors confidence the Federal Open Market Committee will hike rates 50 basis points as expected following Wednesday's much-anticipated meeting.

The December Federal Open Market Committee meeting, combined with the release of inflation data, "will test the good cheer currently prevailing in the bond market," said MSCI Research strategists Andy Sparks, Tamas Hanis and Edina Szirma.