Inflation

Inflation remains under market scrutiny, with Monday’s data suggesting consumers expect price pressures to cool later this year.

Municipal yields rose up to 10 basis points on the short end, playing catch up to the volatility of Treasuries' moves on Thursday. Rising UST rates will inevitably be more significant for munis until they settle into more stable levels.

Refinitiv Lipper reported the first inflows into municipal bond mutual funds at $216 million after three weeks of large outflows while high-yield saw small outflows. Exchange-traded funds reported $755 million of inflows.

Markets were somewhat comforted by Federal Reserve Bank of Atlanta President Raphael Bostic’s comments suggesting the Fed will not be as aggressive as the markets suspect.

Washington will bring $742 million of general obligation bonds in competitive sales Tuesday, providing guidance for triple-A benchmark yields.

The market consensus is that interest rates will rise by two to three percentage points over the next three years. What will that mean?

Buyers appeared to return to the market the past two sessions after the January correction moved yields and ratios higher. Secondary trading was up again on Wednesday and new deals were well-received.

John Hallacy of John Hallacy Consulting LLC sits down with Chip Barnett to talk about what the municipal bond market will face in 2022. He discusses inflation, new issuance volume, and the future of infrastructure this year amid the lingering effects of COVID and Omicron. (19 minutes)

In the near term, federal aid is sitting on balance sheets ready to be deployed if some of the downside economic risks become reality, experts say.

Refinitiv Lipper reported $238.926 million of outflows, but $182.035 million of inflows to high-yield, reversing last week's outflows. New-issues faced concessions.

The Investment Company Institute reported a large drop of inflows into municipal bond mutual funds at $142 million in the week ending Jan. 12, down from $1.413 billion in the previous week.

The 2-, 5- and 10-year UST is higher than before the pandemic began as investors factor in a rate hike as soon as March.

The largest deal of the week comes from the New York City Transitional Finance Authority with $950 million of exempts and $250 million of taxables.

For investors in the municipal bond market, 2021 proved to be a year of hurdles. This is likely to change, particularly for investors in the municipal bond market.

Supply is beginning to roll in and the primary action on Wednesday provided more direction. ICI reports $1.4 billion of inflows.

Other concerns include ongoing threats from the coronavirus, inflation and legislative inertia on muni issues in Washington, according to a Bond Buyer survey.

Pressures from inflation concerns and broader rising rates weigh on munis in the second week of 2022.

Municipals triple-A benchmarks continue the trend of ignoring other markets to start 2022. The new year will likely usher in slower growth and continued inflationary pressures, analysts said.

Tax risks continue to linger as they are preserved as a potential offset for whatever level of spending all 50 Democratic senators can agree to, but potential approval of the legislation remains a question mark.

Municipal market participants need to be vigilant in monitoring liquidity and the impact of growing inflation.