Inflation

More firms are revising issuance projections downward due to lower refunding and taxable volumes. Many participants say it is unlikely the market will hit issuance records reached in 2021 and 2020.

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.

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.

The U.S. economy needs supply-side interventions rather than interest-rate hikes by the Federal Reserve that will fail to bring inflation under control, said Nobel laureate economist Joe Stiglitz.

Given the volatility of risk assets is likely to remain high, and the focus on the flight to safety increases, all fixed-income assets could benefit as a result, including municipals, Barclays strategists say.

Some worry that governments will use new infrastructure funds for generic, shovel-ready projects, or even tax cuts, instead of collaborative plans that could transform regions.

On the buy-side, weakness, outflows, supply issues, and poor liquidity are making life challenging for municipal bond investors. The same could be said for issuers.

Investors pulled more from municipal bond mutual funds in the latest week, with Refinitiv Lipper reporting $2.446 billion of outflows, though that was down from $2.669 billion of outflows in the previous week.

Valuations look increasingly attractive relative to other fixed income asset classes, even as rising interest rates continue to weigh on the market, strategists say.

Outflows continue with the Investment Company Institute reporting $6.167 billion pulled from muni bond mutual funds in the week ending May 4, up from $5.371 billion of outflows in the previous week. 

Inflation is "absolutely a problem," Yellen told a Senate panel, adding that the hot labor market illustrates the success of aid packages like the American Rescue Plan.

Investors pulled more from municipal bond mutual funds in the latest week, with Refinitiv Lipper reporting $2.669 billion of outflows, though down from $2.875 billion of outflows in the previous week.

Relative cheapness, wider spreads and underperformance in munis are providing better value, all set against a very solid and resilient credit background, analysts say, but supply is testing investor sentiment amid volatility.

“I would say that 50 basis points will be on the table for the May meeting,” Federal Reserve Chair Jerome Powell said Thursday.

State and local governments are flush with cash and well-positioned to embrace the coming storm, experts say.

The significant cheapening of municipals in recent weeks continues to create headwinds for the overall tax-exempt market on a daily basis.

Investors pulled more from municipal bond mutual funds last week, with Refinitiv Lipper reporting $4.106 billion of outflows, bring the total to $22.3 billion of outflows year-to-date.

Like last week, supply for the new-calendar issuance is light at $4.804 billion with $3.182 billion of negotiated deals and $1.622 billion of competitive loans.

The second quarter should bring more opportunity and less volatility following the worst quarter in four decades, analysts said.

Investors pulled more from municipal bond mutual funds as the Investment Company Institute on Wednesday reported $4.786 billion of outflows, up from $4.459 billion of outflows in the previous week.