Investment funds

Munis "responded in part to a better UST session [Wednesday] but weren't in a position from a supply standpoint to attempt to match the 10-15 basis point rally in taxables," said Kim Olsan, a senior fixed income portfolio manager at NewSquare Capital.

The muni market also faces an elevated new-issue calendar, which may put additional pressure on muni yields. Bond Buyer 30-day visible supply sits at $17.57 billion.

The management team sees opportunity in pockets that other investors avoid, like American Dream, Midwestern private colleges and senior living facilities.

Sizable deals for next week include $1.3 billion of real estate transfer tax revenue bonds from the Triborough Bridge and Tunnel Authority and $996.335 million of second series revenue bonds from the San Francisco International Airport.

The Federal Reserve will be more cautious and slow rate cuts going forward, according to minutes of the December Federal Open Market Committee meeting, released Wednesday.

"These opportunities will surface periodically throughout the year against heavy supply and the increasingly uncertain path for the Fed, evolving fiscal policy, and volatile Treasury market backdrop," said J.P. Morgan strategists.

Heavy redemptions and coupon payments this month should help "stabilize" the market, said Barclays strategist Mikhail Foux.

Investors pulled more from municipal bond mutual funds in the final reporting week of 2024, but high-yield reverted to inflows to close out the year, adding to the sector's outperformance overall.

While municipals have outperformed USTs on the whole in 2024, they will close December with losses. How taxables perform in early 2025 coupled with macroeconomic and Washington policy uncertainty have municipal market participants on edge for what lies ahead.

While Friday's muni session was muted, the damage of a volatile UST market, paired with low new-issue supply and year-end positioning, has weighed on the asset class in December.

Munis "continued their slide" last week as yields rose an average of 23 basis points across the curve as the Fed Chairman Jerome Powell signaled the Fed will take a "more cautious approach" on interest rate cuts next year, said Jason Wong, vice president of municipals at AmeriVet Securities.

Silver Point says it has done nothing wrong, and has retained prominent legal figures for its defense.

The face amount of munis outstanding rose to $4.171 trillion, a 0.8% increase from Q2 2024 and 2.9% from Q3 2023, according to the latest Fed data.

Muni mutual funds saw outflows after 23 weeks of inflows as LSEG Lipper reported investors pulled $316.2 million for the week ending Dec. 11. High-yield municipal bond funds, though, saw inflows of $192.3 million.

Municipal investors are more focused on the final new-issues coming down the pike and repositioning books as 2024 heads to a close. ICI reported another week of inflows into municipal bond mutual funds.

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.

High-yield municipal bond funds saw inflows of $534.1 million compared to $300.6 million compared the previous week, per LSEG Lipper data.

Technicals could "break down" if there is a potential decline in risk assets or rising unemployment, particularly in white-collar jobs, said Jeff Timlin, a managing partner at Sage Advisory.

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.

High-yield funds saw $608.9 million of inflows compared with inflows of $150.3 million the week prior.