Finance

S&P cited budget pressures that have not been counterbalanced by new revenue growth when lowered the outlook on the city's BBB-plus rated GO bonds.

Supply is expected to increase in the coming weeks, and there may be more rate-direction volatility, said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Policymakers appear to be concerned about the possibility of cutting interest rates too soon, according to minutes of the Federal Open Market Committee's Jan. 30-31 meeting, released Wednesday.

Pensions funds are increasingly investing in riskier asset classes, with more than half their investments in 2022 in these, according to some estimates.

"With the new economic data signaling a delay of the Fed starting rate cuts to further into the year, we should continue to see yields rise until we get near to the Fed's target of a 2% 'neutral' rate for inflation," said Jason Wong, vice president of municipals at AmeriVet Securities.

All municipal bond insurers wrapped $35.381 billion in 2023, a 5.8% increase from the $33.428 billion insured in 2022, according to LSEG data.

Bond volume fell slightly, as volatility, higher interest rates, falling pandemic aid and slower economic growth kept issuers on the sidelines.

"Tight underwriting spreads in 2023 followed, for the most part, a well-entrenched trajectory that has backdropped the primary municipal market for years, and so the negligible bump in spreads does not come as a surprise," said Jeff Lipton, managing director of credit research at Oppenheimer.

Texas bond volume climbed 22.5% to lead the nation in a year when issuance in the eight-state Southwest region increased by only 0.6%.

"With supply still low, and fund outflows just marginal, it is not clear what would substantially cheapen the market, and we could get stuck in the current range for some time time," Barclays strategists said.

Moody's Investors Service placed the university under review for downgrade, citing in part debt that would be issued to purchase the University of Phoenix.

Municipal bond mutual funds saw the second week of outflows, with LSEG Lipper reporting $142.2 million of outflows for the week ending Wednesday. High-yield funds saw inflows.

Fitch said its upgrade "reflects the removal of the asymmetric additional risk relating to potential general fund exposure to the county's enterprise sewer system … which reflects the system's recent restructuring of its outstanding debt."

David Brownstein, who helped Jefferson County, Alabama, and Detroit return to market after bankruptcy, has opened a new firm that is advising the Oversight Board on its plan of adjustment for PREPA.

Despite losses, munis are still outperforming USTs and corporates on a month-to-date and year-to-date basis, noted Cooper Howard, a fixed-income strategist at Charles Schwab.

The consumer price index number further complicates market expectations of Fed rate cuts and muni investors may want "to keep their powder dry" until they have a better idea of the Fed's timing, said CreditSights' Pat Luby.

The muni market will see "continued strength," said Wesly Pate, senior portfolio manager at Income Research + Management, largely due to a a dearth of new-issue supply.

Oklahoma is on a roll, notching its third positive rating outlook since July with the latest move coming from Fitch Ratings.

"Even though it is hard to see the market falling out of bed and underperforming in the near term, we are more cautious going into March," Barclays PLC said in a report.

A majority of those polled at The Bond Buyer's 2024 National Outlook Conference also felt issuance would increase moderately this year, to between $400 billion and $450 billion.