Primary bond market

"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.

The volatility in USTs is giving municipals a difficult run to start February. The asset class lagged the selloff and outperformed the recent rally, which points to its resiliency — but those moves do not come without challenges.

Chad Wildman, executive director, Quantitative Strategies at FMSbonds, and Matthew Smith, founder and CEO of Spline Data, discuss how automation has repositioned the muni market and where participants can find value by using technology tools. Lynne Funk hosts. (45 minutes)

Triple-A scales saw yields rise 10 to 13 basis points following a second day of UST losses as muni investors await a robust new-issue calendar.

Higher interest rates, inflation and slower economic growth could create headwinds for the U.S. public finance sector, S&P Global Ratings said.

Munis saw smaller losses, outperforming a UST sell-off after the employment report came in stronger than expected, leading analysts to suggest Federal Reserve rate cuts may come later than anticipated.

The goal behind SOLVE's new product is to turn raw data into data-driven insights through AI, with munis being the first step before expanding to other key asset classes in fixed income, said Eugene Grinberg, co-founder and CEO of SOLVE.

The primary saw strong demand with the Triborough Bridge and Tunnel Authority doubling the size of its deal to $1.6 billion.

"We're going to be opportunistic based on what the market conditions are and what the interest rate environment is," said Ben Watkins, director of the Florida Division of Bond Finance. "We like to be like Boy Scouts — we always want to be prepared."

Fed Chair Jerome Powell said cuts are likely this year but are not guaranteed. He added that the Fed is looking for more signs that inflation is moderating. "We are prepared to maintain the current target range for the federal funds rate for longer if appropriate."

Issuance for the month is slightly above the $27.666 billion 10-year average, according to LSEG Refinitiv data.