The muni market faces healthy supply this week as September starts, with the focus remaining the Federal Reserve, continued headlines from the Middle East and market technicals.
The story has not changed over the past several months, with continued uncertainty and a bias toward higher rates given current policies in Washington, D.C., and mixed economic data, said Elaine Brennan, executive director of the public finance department at Roosevelt & Cross.
This week the market will be digesting
"Warsh insinuated that the economy is showing signs of improvement regarding the elevated price pressures that have been consistently present in the economy but emphasized that his comments are not 'forward guidance' but just an example of a disciplined strategy to attack inflation," said Ajay Thomas, head of public finance at FHN Financial.
In munis, rates continue to grind higher as new issue supply remains elevated, he said.
This week, issuance is estimated at $12.821 billion, with $9.301 billion of negotiated deals on tap and $3.519 billion of competitives, according to LSEG.
The Salt River Project Agricultural Improvement and Power District, Arizona, leads the negotiated calendar with $1.352 billion of electric system revenue bonds, followed by Chicago with $1.313 billion of general airport senior lien revenue and revenue bonds to be issued on behalf of O'Hare International Airport.
The competitive calendar is led by the Dormitory Authority of the State of New York with $1.933 billion of state sales tax revenue bonds in six series.
The healthy calendar comes as demand remains strong, which is expected to continue, given that yields are very attractive relative to almost any other fixed-income asset, said Andrew Clinton, CEO and founder of Clinton Investment Management.
"So we think the market is well balanced at the moment," he said.
Deals are clearing the market with just enough subscriptions from investors, Thomas said.
"We are in a 'tale of two markets' for issuers right now where transactions with block size and totaling more than $100 million are getting more attention and having an easier pathway to favorable pricing execution than smaller-sized transactions with maturities offering less than $1.5 million per maturity," he said.
While strong reinvestment demand in August "helped to soak up the heavy new issue volume, demand will fall after August's money is put to work, so we look for the previously supportive technical tailwind to shift to a headwind with the arrival of September and an increase in net supply, which will mean that some new deals will need to be priced in order to draw new money into the market," said Pat Luby, head of municipal strategy at CreditSights.
The new issue market will provide "pockets of opportunities" for investors with bonds rolling off in the next few months, especially as October approaches, when supply is expected to peak.
"It makes sense for investors to selectively take advantage of the abundant new issue supply and for those with flexibility to consider extending into the less crowded part of the curve, but we see little incremental reason for most investors to look beyond about 16 to 17 years."
