Primary bond market

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.

The muni market saw $507.585 billion of debt issued in 2024, up 31.8% from $385.061 in 2023. This surpasses the previous record of $484.601 billion in 2020 by more than $20 billion, per LSEG data.

Both IG and HY indices will likely end this year richer versus USTs and their benchmarks, "leaving very little cushion to absorb rate volatility," said Barclays strategist Mikhail Foux.

"It's an unfortunate part of doing business," said an investor.

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.

High-yield funds saw outflows of $413.6 million compared to the previous week's outflows of $71 million.

In the remaining days of this year, "taxable rates continue to be pressured but munis are finding a stable, even supportive, bidside," said Kim Olsan, a senior fixed income portfolio manager at NewSquare Capital.

The Trump administration will bring a shift in infrastructure priorities.

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.

Municipals are seeing losses of 1.82% in December, which has dragged down overall gains to just 0.68% for 2024, per the Bloomberg Municipal Index.