Secondary bond market

Following the September/October rally, munis have been relatively steady in November and December, with direction and magnitude of rate change in the UST market driving underperformance or outperformance, said J.P. Morgan strategists led by Peter DeGroot.

The dramatic downgrade projects a default by January 2027 on bonds issued to finance the Miami-to-Orlando passenger train service.

Supply for the final two weeks of the year will be virtually nonexistent, with only one deal, $24.46 million of taxable multi-family/project bonds from the Colorado Housing and Finance Authority, on the calendar for next week.

Muni yields were bumped a basis point, while UST yields fell two to four basis points.

"Once this week is done, that's it for the year. The following week is Christmas, and then after that, the new year," said Jeff Timlin, a partner at Sage Advisory.

The company has the option to defer interest payments three times without triggering a formal default.

Inflation reports may drive markets in 2026 since the labor market is "sending mixed messages," said Kevin O'Neil, associate portfolio manager and senior research analyst at Brandywine Global.

Next year, the "muni market could see stable to improving returns depending on yield curve positioning, with better performance possible at the long end of the curve," said Jonathan Rocafort, managing director and head of fixed income solutions at Parametric.

The New York City Transitional Finance Authority leads the new-issue calendar with $2 billion of future tax-secured subordinate refunding bonds.

"With its third straight rate cut, the Fed is sending a clear message: it's no longer just watching inflation — it's managing risk," said Gina Bolvin, president of Bolvin Wealth Management Group.

Muni yields were little changed, and have barely moved over the past several trading sessions, said Kim Olsan, senior fixed income portfolio manager at NewSquare.

While muni returns moved lower last week, year-to-date returns still hover around 4%, said Jason Wong, vice president of municipals at AmeriVet Securities.

Concerns about Brightline have dragged down performance in the high yield sector this year.

Issuers mostly avoided pricing deals in the previous weeks the Fed met this year, but that's not the case this week, said Pat Luby, head of municipal strategy at CreditSights, and Wilson Lees, an analyst at the firm.

The tax-exempt muni market has performed "exceptionally well" so far this week, outperforming USTs, said J.P. Morgan strategists led by Peter DeGroot.

Robust issuance this year has contributed to muni underperformance relative to other asset classes, but it also has "improved after-tax relative value for investors in higher tax brackets," said Sam Weitzman of Western Asset.

The muni market is dealing with elevated supply this week and secondary flows have "reacted in tandem," said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.

This movement comes on the heels of muni yields remaining relatively unchanged throughout November.

The muni market recorded its fourth straight month of positive returns in November and December is likely to keep the streak going with another strong month to round out the year.

Preliminary November issuance figures are at $37.054 billion, up 45.5% year-over-year, according to LSEG.