Secondary bond market

Municipal bond mutual funds saw inflows as investors added $956 million to funds after $1.047 billion of inflows the week prior, according to LSEG Lipper.

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.

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.

ICE's and MarketAxess's networks are "complementary," said Peter Borstelmann, president of ICE Bonds, as the former is "deep and rich" in the retail wealth segment, while the latter is "deep and rich" in the institutional space.

"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 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.