Primary bond market

Most weeks in September are expected to see around $10 billion of issuance, which could easily grow if a prepaid gas deal is thrown into the mix, said Jason Appleson, head of municipal bonds at PGIM Fixed Income. Bond Buyer 30-day visible supply sits at $16.46 billion.

Summer redemption season has ended, and "without the huge amounts of maturing and called bond principal flowing back to investors, demand in the last months of the year will be more reliant on new money coming into the market than it was in June, July and August," said Pat Luby, head of municipal strategy at CreditSights.

The Dallas-Fort Worth region toll highway owner and operator aims to rake in savings from the deal as it expects to cash fund a $2 billion capital plan.

Investors will see more than $7.8 billion of supply to start off September, following a record issuance month in August. The calendar is led by the North Texas Tollway Authority's $1.126 billion of system revenue refunding bonds while high-grade Massachusetts leads the competitive slate with $850 million of exempt and taxable general obligation bonds.

The muni market is "well-positioned for strategic opportunities, with strong inflows driven by the current narrative and eased secondary selling pressure," said James Pruskowski, chief investment officer at 16Rock Asset Management.

The Investment Company Institute reported more than $1.3 billion of inflows into muni mutual funds. The last time inflows topped $1 billion, per ICI data, was for the week ending Feb. 7. LSEG Lipper has reported weeks with $1 billion plus inflows on July 31 and May 8.

Chicago will bring to market $1 billion of bonds for O'Hare International Airport, part one of a three-phase financing plan for 2024.

"On the whole, the municipal market continues to provide an attractive entry point for investors," said AllianceBernstein strategists. "And with the Fed clearly communicating that a September rate cut is imminent, the future is bright for the municipal market."

"The forward calendar shows issuance will be above average over the next few weeks, while reinvestment cash is set to drop off," Birch Creek strategists said.

The purpose of restructuring is to help the Pennsylvania hospital operator "avoid a bankruptcy scenario," said Dora Lee of Belle Haven Investments.

The calendar next week largely continues "the elevated pace of primary market volume seen since May, against a backdrop of broadly supportive fund flows (LSEG inflows for eight consecutive weeks), somewhat better dealer positions (although still heavy), mid-August reinvestment to spend, but lighter late summer attendance," said J.P. Morgan strategists led by Peter DeGroot.

Along with the influx of supply, the muni market remains "constructive" due to attractive yields, said Catherine Stienstra, head of municipal bond investments at Columbia Threadneedle Investments.

All eyes are on Jackson Hole and Fed Chairman Jerome Powell's speech this week, noted Cooper Howard, a fixed-income strategist at Charles Schwab.

"Investor reception will remain the ultimate arbiter of muni performance and … the current state of the tax-exempt space to be well-positioned, even though munis are likely to continue to underperform USTs," said Jeff Lipton, a research analyst and market strategist.

At $1.8 billion, the tax-exempt and taxable deal is the largest on the calendar this week and it's the latest offering from the city since a $1.2 billion refunding issuance in July. 

As investors contemplate rate policy for the remainder of 2024, "there have been a few strategies from which to choose to boost yield — short positioning, curve extension and credit quality," noted Kim Olsan, senior fixed-income portfolio manager at NewSquare Capital.

Pent-up demand, dwindling federal aid and lower interest rates led to a 32% increase in municipal issuance in the first half of 2024.

New sales of tax-exempt bonds in California have been gobbled up by buyers looking to shield income from the state's high taxes and to lock in yields.

Municipal bond insurers wrapped $18.592 billion in the first half of 2024, a 19.5% increase from the $15.561 billion insured in the first half of 2023, according to LSEG data.

Barclays rate strategists believe the 10-year part of the Treasury curve has room to cheapen. "In that case, tax-exempts will likely not only follow, but underperform."