Primary bond market

The bonds are rated Aa2 by Moody's Investors Service, AA by S&P Global Ratings and Fitch Ratings and AA-plus by Kroll Bond Rating Agency. All four rating agencies have a stable outlook on the credit.

The week ahead boasts some big-name issuers and rare credits, which should provide interesting price discovery. The new-issue calendar totals $6.08 billion, with a larger competitive calendar coming in at $2.4 billion.

Supply is expected to increase in the coming weeks, and there may be more rate-direction volatility, said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Natural gas prepayment deals helped drive the utilities sector to top the Southeast in an overall down year for municipal bond sales across the region.

Policymakers appear to be concerned about the possibility of cutting interest rates too soon, according to minutes of the Federal Open Market Committee's Jan. 30-31 meeting, released Wednesday.

"With the new economic data signaling a delay of the Fed starting rate cuts to further into the year, we should continue to see yields rise until we get near to the Fed's target of a 2% 'neutral' rate for inflation," said Jason Wong, vice president of municipals at AmeriVet Securities.

A private university in Milwaukee will borrow $163.7 million through tax-exempt bonds to build new emergency response facilities for the state and county.

All municipal bond insurers wrapped $35.381 billion in 2023, a 5.8% increase from the $33.428 billion insured in 2022, according to LSEG data.

Bond volume fell slightly, as volatility, higher interest rates, falling pandemic aid and slower economic growth kept issuers on the sidelines.

Issuance has fluctuated throughout the years since the financial crisis, following interest rate changes — rising when rates rise and falling when rates fall — but the totals have come in well below $15 billion every year since 2012, save for 2017 when $15.234 billion was sold.

"Tight underwriting spreads in 2023 followed, for the most part, a well-entrenched trajectory that has backdropped the primary municipal market for years, and so the negligible bump in spreads does not come as a surprise," said Jeff Lipton, managing director of credit research at Oppenheimer.

"With supply still low, and fund outflows just marginal, it is not clear what would substantially cheapen the market, and we could get stuck in the current range for some time time," Barclays strategists said.

Municipal bond mutual funds saw the second week of outflows, with LSEG Lipper reporting $142.2 million of outflows for the week ending Wednesday. High-yield funds saw inflows.

The Chicago Park District Board of Commissioners unanimously approved three ordinances laying the groundwork for up to $37 million new money bonds and a tender.

Despite losses, munis are still outperforming USTs and corporates on a month-to-date and year-to-date basis, noted Cooper Howard, a fixed-income strategist at Charles Schwab.

The consumer price index number further complicates market expectations of Fed rate cuts and muni investors may want "to keep their powder dry" until they have a better idea of the Fed's timing, said CreditSights' Pat Luby.

The muni market will see "continued strength," said Wesly Pate, senior portfolio manager at Income Research + Management, largely due to a a dearth of new-issue supply.

"Even though it is hard to see the market falling out of bed and underperforming in the near term, we are more cautious going into March," Barclays PLC said in a report.

Municipals were steady to improved in spots in secondary trading as another day of sizable new-issues were well-received in the primary market.

The SIFMA Swap Index fell to 3.24% Wednesday, down 50 basis points from 3.74% from the week prior, and 131 basis points from 4.55% it hit on Jan. 24 as swings continued in the VRDO market. Tax-exempt money market funds reversed course to see inflows of almost $4 billion.