Jessica Lerner

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.

Projections for total bond volume in 2023 are at a high of $500 billion and a low of $302 billion, continuing 2022's lackluster growth.

Investors will be greeted Monday with a new-issue calendar estimated at $3.214 billion, the majority of which is a nearly $1.9 billion private activity P3 bond deal from Pennsylvania.

Arrick was formerly a managing director and healthcare group leader for S&P Global Ratings.

Refinitiv Lipper reported $46.912 million was added to municipal bond mutual funds for the week ending Wednesday after $1.394 billion of outflows the week prior.

"Yield curve inversion deepens and nears a four-decade low which is clearly setting up this economy for a recession that won't be a mild one," OANDA's Edward Moya said.

Despite the volatility in equities and Treasuries, the backdrop for munis is very positive.

"Munis are poised to continue this rally into December as we can end 2022 on a high note and close out the worst-performing year on record for munis," said Jason Wong, vice president of municipals at AmeriVet Securities.

Investors will be greeted Monday with a new-issue calendar estimated at $5.893 billion.

Munis saw the best performance in November in decades, with the asset class ending in the positive by 4.68%. The MSRB reported that trading volume reached another record in November, with 1.29 million municipal trades.

Powell said smaller interest rate increases are likely ahead — and could start as early as next month.