The muni market faces a rebound in issuance — though still lighter than the past several weeks — and heavy reinvestment flows this week.
Following a holiday-shortened week, things will ramp up pretty quickly this week, as people start to focus on getting some of that money to work and on new deals, said Jeff Timlin, managing partner and head of municipal bond investing at Sage Advisory.
The market should receive some support this week from reinvestment inflows and a lighter new-issue calendar, said Barclays strategists.
Issuance is estimated at $9.48 billion this week. There are $8.03 billion of negotiated deals on tap and $1.45 million of competitives.
Deals that offer some value and spread opportunities will be well-received, while those that are less attractive or higher quality might face some challenges in certain parts of the curve, Timlin said.
California State University leads the negotiated calendar with $1.8 billion of systemwide revenue bonds, to be priced across four tranches.
The competitive calendar is led by the New York State Thruway Authority, with $566.67 million of general revenue bonds in two series.
Munis, from an income standpoint, make a pretty compelling case relative to other asset classes, said Miguel Laranjeiro, investment director for municipal debt at Aberdeen Investments.
"On the investment-grade side, you could pick up around 100 basis points on a taxable equivalent basis in terms of yield," while the pickup in high yield is around 150 basis points to 180 basis points on a TEY basis, he said.
Meanwhile, performance from a total return perspective, both in investment grade and high yield has looked pretty attractive compared to other U.S. fixed income asset classes, Laranjeiro said.
Historically, July has been a strong month for munis, as "large bond maturities and coupon payments typically provide a meaningful technical tailwind," Barclays strategists said.
However, this has not happened in the past two years, with MMD-USTs ratios moving higher during July, they said.
This July could also be somewhat challenging. Supply is expected to "broadly follow last year's seasonal pattern and remain elevated through July and August, although issuance should moderate somewhat from June's pace."
Concurrently, July reinvestment flows are expected to be robust, particularly in large markets, like New York and California, they said.
While demand has been strong this year, July and August are the peak of the summer redemption season and reinvestment demand, said CreditSights strategists.
"We look for a near-term continuation of demand from investors looking to put money to work, but we also look for that demand to taper off with the approach of Labor Day, and for new issue supply to potentially exert upward pressure on muni yields in September and October," they said.
