Primary bond market

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.

"Yields are attractive, and there's going to be a lot of demand and there's not going to be a lot of bonds," said Scott Diamond, co-head of the municipal fixed income team at Goldman Sachs.

A private school catering to Los Angeles' wealthiest residents is tapping the municipal bond market to expand its campus and add to its academic offerings. 

"The market seems to be coalescing around the view that these historically rich ratios can be sustained through February, but that the market technical becomes far less favorable in March and April," said Birch Creek Capital strategists in a report.

The deal comes following several toll increases — which have bolstered the authority's credit — that have also compelled a state senator to introduce a bill that would dissolve the authority.

BofA expects muni yields to continue to move up and credit spreads to narrow "in a slow and gentle fashion" in February.

LSEG Lipper reported Thursday that investors added $210.6 million to municipal bond mutual funds for the week ending Wednesday — the third consecutive week — after inflows of $898 million the week prior.

As ridership remains low, investors are closely watching for new funding streams and credits like the MTA's planned congestion tax-backed bonds.

Despite fixed-income seeing losses this month, Jeff Lipton, managing director of credit research at Oppenheimer, believes "a performance sea change is nearing."

After the year-end rally, "2024 bond investors have been reluctant buyers, prices creeping lower perhaps until the data and the Fed's next steps are more clear," said Matt Fabian, partner at Municipal Market Analytics.

This week's heavy new-issue calendar of tax-exempt supply "could lead to a modest cheapening of ratios," said Vikram Rai, head of municipal markets strategy at Wells Fargo.