Primary bond market

Munis are now following along with broader Treasury market weakness, and "at the same time are also attempting to manage some of the healthiest issuance that we've seen this year," said Morgan Stanley's Matthew Gastall.

The top two municipal bond insurers wrapped $22.814 billion in the first three quarters of 2023, a slight dip of 0.5% from the $22.929 billion of deals done over the same period in 2022, according to Refinitiv data.

Royden Durham and Tony Tanner, portfolio managers at the Aquila group of funds, talk with Chip Barnett about what's special about Kentucky and Arizona -- what's the same and what's different -- within their municipal bond markets. (18 minutes)

"The combination of higher yields and this week's heavier new-issue calendar will attract attention from income-focused individual investors as well as from institutional investors who are underweight munis," said CreditSights strategists Pat Luby and Sam Berzok.

As valuations got richer after muni outperformance this week, Barclays strategists expect munis to be "truly tested in the next several weeks, with supply picking up."

The recent rise in yields has created an opportunity for those investors waiting to "jump into the market," said Roberto Roffo, portfolio manager at SWBC Investment Company.  

Despite the sticker shock of rising rates, yields in fact are at average levels for over the last 30 years, panelists said at the GFOA's MiniMuni conference.

A higher inflation figure sent UST yields higher, complicating Central Bank policymaking and reversing a flight-to-safety bid amid ongoing geopolitical turmoil in Israel.

Minutes from the September Federal Open Market Committee meeting were "not much of a market mover" Wednesday, said Scott Anderson, chief U.S. economist and managing director at BMO Economics.

However, "a long-lasting bond market rally seems unlikely given major structural shifts of higher bond supply and on uncertainty with demand," said Edward Moya, senior market analyst at OANDA.

The firm will continue to do business in the competitive market.

"Despite the breathtaking selloff in longer rates, Barclays' macro strategists see no clear catalyst to stem the bleeding," Barclays strategists said. "Data are unlikely to weaken quickly or enough to help bonds."

The nature of municipal bonds is to help people, says Peter Hayes, "I really like that it's public purpose."

All eyes will be on Friday's report, though "it seems most leading indicators suggest job growth will remain healthy, which should keep the bond market selloff going strong," said OANDA's Edward Moya.

Municipal yields fell up to three basis points, depending on the scale, but underperform a better UST market.

UST rates are driving all things in the muni market, said Jon Mondillo, head of North American Fixed Income at abrdn.

There will be "choppiness in the municipal bond market through the end of the year," said Anders S. Persson, Nuveen's chief investment officer for Global Fixed Income, and Daniel J. Close, Nuveen's head of municipals.

"We were pleased to achieve such strong results, especially in light of the recent volatile market conditions," said Philadelphia Treasurer Jacqueline Dunn.

The Bloomberg Municipal Index and High-Yield Index lost 3.3% and 3.9%, respectively, in September.

September's total volume ticked up 1.2% to $27.585 billion in 531 issues from $27.251 billion in 592 issues a year earlier. However, the month's total is lower than the $30.652 billion 10-year average, according to Refinitiv data.