Secondary bond market

Municipals have taken a hit in the first months of 2022, but higher yield levels and cheaper ratios have offered possibilities for both retail and institutional buyers, analysts say.

Next week's supply is slated to be $10.166 billion, $8.982 billion of negotiated deals and $1.184 billion of competitive loans. A larger primary calendar is led by two billion-dollar airport deals.

Investors pulled more from municipal bond mutual funds in the latest week, with Refinitiv Lipper reporting $2.038 billion of outflows, up from $1.503 billion of outflows in the previous week.

The Investment Company Institute on Wednesday reported $2.728 billion of outflows in the week ending March 23, down from $3.615 billion of outflows in the previous week.

Without a reversal in UST or municipal bond mutual fund outflows, munis will continue to be pressured.

With massive secondary selling pressure and a larger calendar, credit spreads are likely to continue to widen.

Next week's potential volume is slated to be more than $8 billion, led by $1.25 billion of taxable and tax-exempt future tax-secured subordinate bonds from the New York City Transitional Finance Authority.

Outflows continued, with Refinitiv Lipper reporting investors shed $1.503 billion from municipal bond mutual funds in the week, following outflows of $2.136 billion in the previous week. High-yield saw small inflows.

More outflows from municipal bond mutual funds were reported as bid lists surpass $1 billion 22 times in 2022.

The triple-A 10-year yield is above 2% on all scales, the highest since March 2020.

Muni performance has been strong as of late, and spreads have actually corrected after a month of gradual widening.

Next week's potential volume is slated to be $7.7 billion. The largest deal of the week comes from New York City with $891 million of tax-exempt general obligation bonds. Recent New York paper traded up Friday.

The MSRB has issued a warning that with the rise in interest rates in recent months, bonds trading at a discount may be less liquid than those trading at par.

With volatility and illiquidity realities for the foreseeable future, insights into new-issue and secondary pricing are critical.

Outflows continued, rising significantly in the latest week, with Refinitiv Lipper reporting $2.136 billion coming out of municipal bond mutual funds, following outflows of $661.675 billion in the previous week.

The Investment Company Institute on Wednesday reported $2.258 billion of outflows in the week ending March 9, down from $3.502 billion of outflows in the previous week.

Bond investors are understandably cautious in response to recent market volatility and ahead of what is expected to be a Fed rate hike Wednesday, participants say.

As 2022 unfolds, a confluence of challenges has affected pricing, trading and fund flows in the muni market.

The market is being driven by the prospect of higher long-term inflation and the potential that the Federal Reserve may have to raise rates further than expected.

DASNY leads the calendar with $2.3 billion of exempt personal income tax bonds and $662.32 million of taxables. Potential volume is slated to be $5.11 billion, with $4.392 billion of negotiated deals and $718.1 million of competitive loans.