Secondary bond market

"Bond investors bid a not-so-fond farewell to 2022 as they look forward to a much more attractive 2023," said Bryce Doty of Sit Investment Associates.

The value of the municipal bond market decreased by 4.3% in the third quarter of 2022, said Pat Luby, a strategist at CreditSights.

Outflows continued as Refinitiv Lipper reported $1.946 billion was pulled from municipal bond mutual funds in the week ending Wednesday after $3.094 billion of outflows in the prior week.

"With only a few days remaining in the year, muni bonds have had a tough year losing roughly 8.44% for the year," said Jason Wong, vice president of municipals at AmeriVet Securities.

"Although late-year volumes may be smaller, the market tone is holding firm on the premise of no supply/rollover demand — somewhat typical for December but noteworthy for the level of volatility the market has endured," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Munis were unchanged Friday heading into the Christmas hiatus as light trading preceded the early market close, according to Michael Pietronico, chief executive officer at Miller Tabak Asset Management. 

Outflows continued as Refinitiv Lipper reported $3.094 billion was pulled from municipal bond mutual funds in the week ending Wednesday after $1.217 billion of outflows the week prior.

"A fade in muni prices came on the heels of sovereign debt actions, leaving ratios subject to some correction with just a few sessions remaining in 2022," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Secondary selling pressure was concentrated most heavily on the one-year Tuesday, but sellers pushed yields higher across the curve by five to seven. Bids wanteds were on the rise again with Monday's total hitting $2.122 billion.

"Yield levels are now notably higher throughout many sectors of the yield curve by a number of percentage points," said Morgan Stanley strategists Matthew Gastall and Daryl Helsing.

"This week will likely have been the last active week of the year, but it turned out to be quite eventful," according to Barclays PLC.

Outflows returned as Refinitiv Lipper reported $1.217 billion was pulled out of municipal bond mutual funds for the week ending Wednesday after $46.912 million of inflows the week prior.

The Fed chairman said he believes the Fed is getting close to a sufficiently restrictive level, but they're not quite there. While two good inflation reports are good, "there's still a long way to go to price stability."

The CPI report showed inflation had slowed to 7.1%, giving investors confidence the Federal Open Market Committee will hike rates 50 basis points as expected following Wednesday's much-anticipated meeting.

The December Federal Open Market Committee meeting, combined with the release of inflation data, "will test the good cheer currently prevailing in the bond market," said MSCI Research strategists Andy Sparks, Tamas Hanis and Edina Szirma.

Investors will be greeted Monday with a new-issue calendar estimated at $3.214 billion, the majority of which is a nearly $1.9 billion private activity P3 bond deal from Pennsylvania.

Arrick was formerly a managing director and healthcare group leader for S&P Global Ratings.

Refinitiv Lipper reported $46.912 million was added to municipal bond mutual funds for the week ending Wednesday after $1.394 billion of outflows the week prior.

"Yield curve inversion deepens and nears a four-decade low which is clearly setting up this economy for a recession that won't be a mild one," OANDA's Edward Moya said.

Despite the volatility in equities and Treasuries, the backdrop for munis is very positive.