Munis sold off in parts of the curve Wednesday, as U.S. Treasuries weakened and equities ended lower.
Muni yields were cut by five to nine basis points, depending on the scale. The 10-year MMD-UST ratio reached 74% and the 30-year ratio reached 91%, their highest points year-to-date. USTs cheapened by three to six basis points, pushing the two-, three-, five- and 10-year USTs to their highest levels this year.
The municipal market has struggled ever since Federal Reserve Chair Kevin Warsh voiced his commitment to lowering inflation, Municipal Market Analytics Director Kevin McGuigan said. Fears of a rate hike have fluctuated, but currently investors think it's more likely than not.
"That places a greater emphasis on Friday's [consumer price index] report," McGuigan said. "That could cement expectations one way or the other."
Issuers fear that rates will continue to drift higher, McGuigan said, and it's driving up supply. The week's calendar has increased from $15 billion to $17 billion, McGuigan said; last year, issuers priced just $7.7 billion in the week of Labor Day.
Other market technicals don't bode well either, he said. Fund flows fell week-over-week, likely a product of reinvestment funds drying up, and secondary supply was "shockingly high" on Tuesday, he said.
Fear of the Fed hiking rates "combined with these negative technical factors that the [municipal market] is facing [are] contributing to the inability of the municipal market to be more resilient than Treasuries or stand up to the pressure on rates more broadly," McGuigan said.
ICI data
The Investment Company Institute Wednesday reported outflows of $947 million for the week ending Sept. 2, following $754 million of inflows the previous week. This the largest outflow figure since mid-January.
ICI's fund flow figure differs from LSEG, which reported $137.9 million of inflows over the same period.
Exchange-traded funds saw inflows of $705 million after $1.729 billion of inflows the week prior, per ICI data.
New-issue market
In the primary market Wednesday, Siebert Williams Shank preliminarily priced for New York City (Aa2/AA/AA/AA+/) $1.36 billion of general obligations. The first tranche, $883 million Series 2027B, Subseries B-1 bonds, saw 5s of 2028 at 2.92%, 5s of 2031 at 3.36%, 5s of 2036 at 3.95% and 5s of 2041 at 4.52%.
The second tranche, $477 million of Series 2027-1 bonds, saw 5s of 2028 at 2.92%, 5s of 2031 at 3.36%, 5s of 2035 at 3.86% and 5s of 2038 at 4.21%.
J.P. Morgan priced for Fort Worth (A2//AA-/) $497.12 million of convention center venue project special tax revenue bonds, with 5s of 3/2027 at 2.89%, 5s of 3031 at 3.33%, 5s of 2036 at 3.97%, 5s of 2041 at 4.65%, 5.25s of 2046 at 4.89%, 5.5s of 2051 at 5.07% and 5.5s of 2056 at 5.23%, callable 3/2026.
In the competitive market, Minnesota (Aaa/AAA/AAA/) sold $1.03 billion of GOs in five series. The first series, $324.75 million of various purpose GOs, Series 2026A, Bidding group 1, sold to Wells Fargo, with 5s of 8/2027 at 2.60%, 5s of 2031 at 3.08% and 5s of 2036 at 3.67%, noncall.
The second series, $321.745 million of various purpose GOs, Series 2026A, Bidding group 2, sold to J.P. Morgan, with 5s of 8/2037 at 3.78%, 5s of 8/2041 at 4.22% and 5s of 2046 at 4.51%, callable 8/2036.
The third series, $256.285 million of state trunk highway GOs, Series 2026B, sold to J.P. Morgan, with 5s of 8/2027 at 2.61%, 5s of 2031 at 3.08%, 5s of 2036 at 3.66%, 5s of 2041 at 4.24% and 5s of 2046 at 4.69%, callable 8/2036.
The fourth series, $121.22 million of various purpose GO refunding bonds, Series 2026D, sold to J.P. Morgan, with 5s of 8/2027 at 2.61%, 5s of 2031 at 3.08% and 5s of 2036 at 3.66%, noncall.
The fifth series, $5.675 million of GOs, sold to Baird. No details were available by press time.
