Finance

"The overall muni market appears to be in a good balance despite the hefty slate of primary issuance that has occurred over the past few months," Birch Creek Capital strategists said.

The muni market tends to have "remarkable patience" in relation to USTs, said BofA strategists.

Despite munis being mixed Thursday, the muni AAA yield curve remains inverted, said Taylor Huffman, a client portfolio manager at PTAM.

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"While supply has been outsized over the last several weeks, the market has also seen outsized reinvestment demand over the last several months," said Nuveen strategists.

This week again sees elevated supply, as issuance sits at $9.673 billion, with Tuesday being a very busy day.

The initial reaction was a little bit a flight-to-quality trade in rates, which is supportive of USTs and munis as safe-haven assets do well during times of uncertainty, said Chris Brigati, senior vice president and director of strategic planning and fixed income research at SWBC.

The new-issue calendar is at $9.7 billion the week, led by the Texas Transportation Commission with $1.7 billion of first-tier and second-tier revenue refunding bonds.

Municipal bond mutual funds saw inflows as investors added $891.4 million to funds after $775.3 million of inflows the week prior, according to LSEG Lipper.

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Issuance has remained robust over the past two weeks, with Wednesday being a particularly busy day.

Volume is predicted to continue at "robust levels," possibly through the fourth quarter, said Matt Fabian, a partner at Municipal Market Analytics.

With the reputational stain from the county's 1994 bankruptcy long in the rearview mirror, the southern California county had its rating boosted to the highest rating by S&P Global Ratings.

Financial markets are trying to "absorb" the outcome of higher odds of Trump winning in November, said James Pruskowski, chief investment officer at 16Rock Asset Management.

The New York City Transitional Finance Authority is set up to refund Build America Bonds as part of a $2.11 billion deal slated to land in the market this week.

In the summer, the market will largely move "sideways" and underperform late in the third quarter to early in the fourth quarter, "while possibly recouping most of its losses late in the year depending on the outcome of November elections," said Barclays strategists.

"Bond yields are plunging [Thursday] as rate cut expectations soar following this morning's consumer price index release, which depicted the first month of deflation since July 2022," noted José Torres, senior economist at Interactive Brokers.

Large-scale issuers, including state-level transportation authorities, counties and sales tax entities, have "planned volume to coincide with implied demand," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Unfunded public pension liabilities have dropped more than 60%, or $3 trillion, from the peak in 2020, according to a new Moody's Ratings report.

Overall, demand is "high," an ongoing tailwind for munis, along with solid fundamentals, Nuveen strategists said.