New York City Transitional Finance Authority

Multi-layered state oversight, strict fiscal safeguards and durable revenue pledges support New York City GO and TFA bonds even as investors brace for policy shifts under mayor-elect Zohran Mamdani.

The relative rarity of the credit was compounded by their source of funds, the deal's size, and bond ratings slightly lower than New York state and city. 

The New York City Transitional Finance Authority plans to make an impact on the municipal market this month with $1.8 billion of bond sales.

The NYC TFA will test how the national news cycle has affected the market's appetites. 

New York boasts four of the top 10 issuers, followed by California with two and one a piece for Florida, Massachusetts, Washington and New Jersey.

With investors now anticipating Wednesday's expected rate cut may be the last one for a while, "an overall bullish paradigm has been seriously weakened," noted Matt Fabian, a partner at Municipal Market Analytics, Inc.

Supply falls ahead of the final Federal Open Market Committee meeting of 2024 and the holidays but issuance still breaks records. The lighter calendar should provide support for the secondary market in the final weeks of the year.

The New York City Transitional Finance Authority is set up to refund Build America Bonds as part of a $2.11 billion deal slated to land in the market this week.

The CPI print keeps the possibility of the Fed cutting rates at least once this year, potentially at least two rate cuts if the data continues to point to a trend of inflation falling further, said Jeff Lipton, a research analyst and market strategist.

This week's issuance is above the 2024's year-to-date weekly average of $7.6 billion, said Chris Brigati, senior vice president and director of strategic planning and fixed income research at SWBC.

The city and its related issuers picked financial advisors to work on upcoming bond deals, including GO issuances, TFA deals and water authority sales.

The bonds are rated Aa2 by Moody's Investors Service, AA by S&P Global Ratings and Fitch Ratings and AA-plus by Kroll Bond Rating Agency. All four rating agencies have a stable outlook on the credit.

The SIFMA Swap Index fell to 3.24% Wednesday, down 50 basis points from 3.74% from the week prior, and 131 basis points from 4.55% it hit on Jan. 24 as swings continued in the VRDO market. Tax-exempt money market funds reversed course to see inflows of almost $4 billion.

The volatility in USTs is giving municipals a difficult run to start February. The asset class lagged the selloff and outperformed the recent rally, which points to its resiliency — but those moves do not come without challenges.

Pennsylvania leads the new-issue calendar with $2.1 billion of GOs in four series via the competitive market while the New York City TFA will bring another $1.4 billion of exempts and taxables.

Municipal mutual fund losses continued last week as the Investment Company Institute reporting investors pulled $2.645 billion from the funds in the week ending Oct. 11. ETFs see more inflows, though.

As valuations got richer after muni outperformance this week, Barclays strategists expect munis to be "truly tested in the next several weeks, with supply picking up."

Despite this, August saw the largest monthly volume of 2023, helped by several billion-dollar deals and multiple Texas school district deals.

"Bearish Treasury moves have kept some pressure on the muni market and prevented an attempt to rally during the summer season when large redemptions trump issuance," BofA Global Research said in a report.

Despite looming economic and social challenges, New York City's economy has proven to be more resilient than projected, New York's comptrollers Brad Lander and Thomas DiNapoli say.