FOMC

Monday's massive selloff contributed to investors pulling more out from the mutual fund complex. Exchange-traded funds saw $1 billion of outflows and high-yield investors yanked out $1.7 billion.

If the inflation figures begin to move lower, then there is a reasonable chance of working through this cycle of rising rates without experiencing a recession.

The 75 basis point hike, prompted partly by hotter-than-expected inflation data, is the largest since 1994.

Triple-A yield curves rose five to eight basis points. Volatility somewhat eased Tuesday as investors took pause ahead of the Federal Open Market Committee meeting.

The 25-basis-point move to higher yields is the largest one-day change in triple-As since March 2020 when COVID began roiling markets. Munis could not ignore a continued selloff in UST led by inflation and recession concerns.

While a document search will not turn up the dreaded word “stagflation,” the minutes mention on multiple occasions that the FOMC sees risk to growth skewing toward the downside, and inflation risk to the upside.

Investors will be greeted Monday with an increase in supply with the new-issue calendar estimated at $6.488 billion, led by $1 billion-plus of GOs from Maryland in the competitive market.

Investors will be greeted Tuesday with a decrease in supply with the new-issue calendar estimated at $2.691 billion in $1.786 billion of negotiated deals and $904.9 million of competitive loans.

Municipals improved for the fifth session in a row with 10- and 30-year triple-A yields falling 30 basis points since Thursday. Connecticut priced $1 billion-plus of GOs and saw yields lowered in a repricing.

Federal Reserve Bank of Kansas City President Esther George said she expects the central bank to raise interest rates to 2% by August, with the further course of tightening being guided by how surging inflation cools off.