Inflation

Muni performance has been strong as of late, and spreads have actually corrected after a month of gradual widening.

Next week's potential volume is slated to be $7.7 billion. The largest deal of the week comes from New York City with $891 million of tax-exempt general obligation bonds. Recent New York paper traded up Friday.

Outflows continued, rising significantly in the latest week, with Refinitiv Lipper reporting $2.136 billion coming out of municipal bond mutual funds, following outflows of $661.675 billion in the previous week.

As 2022 unfolds, a confluence of challenges has affected pricing, trading and fund flows in the muni market.

The market is being driven by the prospect of higher long-term inflation and the potential that the Federal Reserve may have to raise rates further than expected.

DASNY leads the calendar with $2.3 billion of exempt personal income tax bonds and $662.32 million of taxables. Potential volume is slated to be $5.11 billion, with $4.392 billion of negotiated deals and $718.1 million of competitive loans.

Outflows continue but dropped significantly in the latest week with Refinitiv Lipper reporting $662 million of outflows from municipal bond mutual funds following $2.823 billion the week prior.

The Investment Company Institute on Wednesday reported another round of large outflows, this week at $3.502 billion, up from $2.647 billion of outflows in the previous week.

Russia’s invasion upends a return to normal as the economic impact of COVID-19 wanes, UCLA Anderson Forecast economists said.

Secondary trading showed weaker prints, moving triple-A yields higher by three to seven basis points, outperforming larger losses in UST. California priced $2.2 billion of GOs for retail.

Market volatility has risen significantly, particularly in the last several weeks, with daily Treasury yield swings of 10 basis points or more becoming the norm with municipals struggling to stabilize.

Ongoing turmoil in the Ukraine is roiling markets, municipals included. Refinitiv Lipper reported more outflows, with high-yield seeing $818.218 million pulled out in the latest week.

The Investment Company Institute on Wednesday reported $2.637 billion of outflows in the week ending Feb. 23, down from $3.120 billion of outflows in the previous week.

The Russian invasion of Ukraine could slow interest rate hikes and has led the market to pull back on the chances of a 50-basis-point liftoff.

All markets, but particularly municipals, are in uncharted territory once again, with volatility amplified by the crisis in Ukraine and a still somewhat uncertain path for the Federal Reserve and inflation.

Soaring inflation could pressure the ratings of utilities if they bring rate hikes that spark customer and political opposition, S&P Global Ratings said.

“With inflation well above the FOMC’s longer-run objective and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the Fed said.

Between the long holiday weekend and investors trying to absorb the Russia-Ukraine developments, it was a slow start to the week in the municipal market.

Refinitiv Lipper reported outflows after inflows of $216 million the previous week.

Municipal bonds' relative value has increased dramatically as rates have risen and credit fundamentals have improved, with municipal-to-Treasury ratios now on par with their five-year averages.