Munis, USTs cheapen after Warsh speech

Munis were weaker on Friday, as U.S. Treasuries cheapened and equities ended lower in the wake of Federal Reserve Chair Kevin Warsh's speech.

Muni yields rose by up to three basis points, depending on the scale. UST yields cheapened by two to 12 basis points, with the biggest losses at the short end of the curve.

Warsh stressed the Fed's commitment to lowering inflation to 2% in his speech at the Jackson Hole symposium and said short-term rates remain the Fed's main tool to combat higher prices. This raises the likelihood in investors' eyes that the Fed will hike rates at its September meeting.

Leading up to the speech, investors felt "an intense amount of anticipation," wrote J.P. Morgan analysts, led by Peter DeGroot, "particularly because his first two Federal Open Market Committee meeting appearances have resulted in significant volatility: Two-year yields rose 12bp and the broad curve flattened 6bp in the wake of the June FOMC meeting, while long-end yields rose 5bp and the curve steepened 8bp following the July meeting."

Primary to come
Issuance is estimated at $12.821 billion next week, 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.