Secondary bond market

The Texas Water Development Board leads the new-issue calendar with $1 billion of revenue bonds.

The general bias toward muni rates is that they would be a bit higher with technicals "being a little less supportive than they were in August, plus what we heard with from the Fed 'higher for longer,' and potentially another hike," said Jeff MacDonald, head of Fixed Income Strategies at Fiduciary Trust International.

As was expected, the FOMC held rates in a range between 5.25% and 5.50%, but the dot plot in the Summary of Economic Projections showed 12 of 19 members expect another 25-basis-point rate hike this year.

Fund flows "should be moving along a more positive trajectory, but they have yet to do so with munis unable to break free of the Treasury market's tight grip," Oppenheimer's Jeff Lipton said.

With a light new-issue calendar ahead of the FOMC meeting, "secondary flows may benefit from greater attention," said Kim Olsan, senior vice president at FHN Financial.

"We believe investors should take advantage of the current high rates environment: investors should pick and choose bonds selectively in the coming weeks in anticipation of this tightening cycle's end after November," BofA strategists said.

Refinitiv Lipper reported $116.737 million was pulled from municipal bond mutual funds for the week ending Wednesday after $798.474 million of outflows from the funds the previous week.

There hasn't been a huge return of capital in the muni market so far this year, with fund flows being rather anemic, said Chad Farrington, co-head of municipal bond strategy at DWS Group.

While supply this week is "softer," uncertainty and volatility may prevail once more due to "yields still not exciting longer-term investors," said Matt Fabian, a partner at Municipal Market Analytics.

Munis have had a slow start "down roughly 0.25% for the first week of September bringing year-to-date returns to 1.34%," said Jason Wong, vice president of municipals at AmeriVet Securities.