Markets

Triple-A yields fell up to five basis points Friday while USTs were mixed. Munis still underperformed taxables on the week, but the setup for the asset class going into yearend is decidedly positive.

The muni market finances the "fabric of our nation, and now, because of Citi's exit, the cost of financing for state and local governments is going to go up," a sell-side source said.

The $250 million of new money social bonds will finance public school construction projects, with another $190 million refunding debt issued to build schools.

Secondary trading showed clear strength across the yield curve Thursday with bellwether names trading up significantly from recent prints and original pricing levels. New-issues in the primary benefited with issuers repricing to lower yields and tight to triple-A curves.

Muni yields fell up to five basis points and dramatically underperformed USTs, as they are wont to do on FOMC days. Treasury yields fell as much as 29 basis points on the two-year and sent the 10-year down closer to the 4% threshold.

The municipal bond rally has brought two big Illinois issuers into the market with plans to sell refunding bonds this week.

Issuers should "absolutely be issuing if possible; the end of year outlook is positive on the surface but substantial volatility lies just below and could arrest or interrupt what have been easier primary market conditions," said MMA's Matt Fabian.

The weakness came as the new-issue calendar grew to $5.9 billion with the addition of a $900 million refunding deal from the Illinois State Highway Toll Highway Authority slated for Thursday. Bond Buyer 30-day visible supply sits at $6.95 billion.

Nuveen's marquee fund has seen the worst performance among the largest high-yield funds so far this year.

The new-issue calendar comes in just over $3 billion, of which is $847 million of state personal income tax revenue bonds from the Empire State Development in three competitive sales.