State of Connecticut

As stocks surged and Treasuries swooned, municipal bond traders gauged the direction of yields as they looked ahead to what may be a downturn in issuance this year.

Municipal bond traders were returning to their desks on Tuesday with their eyes fixed on falling yields as they await a rather quiet primary market.

The municipal bond market will see a shortage of new supply kicking off the new year, after experiencing a record-breaking month in which almost $63 billion of bonds sold.

The Connecticut governor cited recent changes to the state employee pension system as a parallel.

In an unusually busy Monday, municipal bond issuers tried to beat the clock and complete sales ahead of the impending tax reform.

A limited tax base and heavy legacy obligations have hamstrung the city, according to the rating agency.

Now that the uncertainty of tax legislation and how it relates to munis is gone, market participants can focus on the upcoming calendar — as it will most likely be the last big supply week for a while, with Christmas and New Year’s right around the corner.

The final tax bill released late Friday afternoon saved private activity bonds but advance refunding bonds will disappear.

As the exact language of the final tax legislation looms, municipal market participants eager wait to see how it pertains to private activity bonds, there will be $11 billion of issuance awaits as issuers make one final push.

The municipal bond market next week will continue to see above-average volume, albeit at a much slower pace than this week, as $11.14 billion of deals are on the calendar.