Buy side

Investors will be greeted with a diverse new-issue slate the week of Dec. 9, led by bellwether names. If all the deals price, 2024's total should break 2020's record by the end of the week. Despite rich valuations, demand has remained strong as the year winds down.

With an estimated $13 billion calendar on tap, demand for paper will be bolstered by the $16 billion of redemptions coming Monday while mutual fund inflows, this week at about $560 million and concentrated in the long-end, signal solid investor support. Munis are returning 1.73% in November as of Friday.

The Investment Company Institute reported $1.221 billion of inflows into municipal bond mutual funds for the week ending Nov. 20. Exchange-traded funds saw inflows of $836 million.

November's total is below the 10-year average of $32.278 billion and is the lowest monthly total this year. The year's total is about $25 billion short of $500 billion.

Markets could see that "the risks of higher inflation and interest rates are implicit constraints on the Trump policy agenda, with the eventual policy outcomes potentially less inflationary than some investors previously feared," UBS strategists noted.

Supply has "declined materially, allowing dealers to take a breather, with their inventories dropping significantly, while retail investors do not seem to be spooked by rate volatility, lower taxes and possible threats to the tax-exempts, and continued putting money into tax-exempts at a brisk pace," said Mikhail Foux, managing director and head municipal research and strategy at Barclays.

"Volatility creates all kinds of opportunities in the municipal space, not just for tax-loss harvesting, but for positioning and parts of the yield curve that might be undervalued or certain sectors or states that are poised to perform well going into yearend," said Tim McGregor, a managing partner at Riverbend Capital Advisors.

Municipals are outperforming USTs to a large degree this month, with investment grade munis seeing positive 0.81% returns in November and 1.63% year-to-date. USTs are in the red at -0.40% in November with only 0.96% positive returns in 2024.

The baseball team says the county's delays in approving the bonds set back construction and increased the costs.

"This year, with the tax-exemption clearly threatened, primary calendars should (although, of course, might not) be larger, putting a $500 billion full-year supply total in range, with $451 billion already in the books through 46 weeks," said MMA's Matt Fabian.

Houston is set to price Tuesday $1 billion of United Airlines Terminal Improvement Projects AMT revenue bonds while the Public Finance Authority will bring $125 million of non-rated Million Air Three General Aviation Facilities Project revenue bonds.

As headline risk swirls around the Fed and the transition to the Trump administration, municipals have largely stayed in their own lane. November finds the municipal market "in far better technical shape, with an attractive backdrop through at least year-end," J.P. Morgan's Peter DeGroot said. 

Market reaction to inflation numbers was "tempered," said Richard Flax, chief investment officer at Moneyfarm. But should inflationary pressures hold in 2025, "markets may anticipate that further rate cuts could be limited in scope, suggesting a more cautious investment outlook."

Municipals ignored USTs losses, leading to lower muni to UST ratios and adding to the better performance across the curve and credit spectrum.

The doctrine of separation of powers bars the court from telling him how to invest the county's money, he claims.

Tax-exempt money market funds reached a 2024 high of assets under management at $136.84 billion for the week ending Wednesday, according to the Investment Company Institute.

"A sharply lower new-issuance calendar, peak yields, large redemption money and mutual funds inflows are all positive performance factors for the market," BofA strategists said.

Dan Close, Head of Municipals at Nuveen and Margot Kleinman, Director of Research at the firm, joins The Bond Buyer's Lynne Funk to delve into the high-yield market as the New Year — and new rate environment — kick off.

Despite the post-election selloff, inflows continued this week as LSEG Lipper reported investors added $1.263 billion to municipal bond mutual funds for the week ending Wednesday, compared to $658.5 million of inflows the prior week. High-yield inflows returned.

The red wave that took the presidency and the Senate — along with increased odds of a Republican victory in the House — was hanging heavily over fixed income markets Wednesday, with munis and UST yields rising up to 17 basis points, with the largest losses out long.