Secondary bond market

Inflation is front and center this week, with the consumer price index report released on Wednesday and the producer price index on Thursday.

Municipals were cut up to four basis points, depending on the scale, while UST yields rose up to four basis points out long.

BlackRock's move comes as money continues to flow out of muni mutual funds into ETFs and SMAs.

Munis continue to outpace USTs as ratios on the front end continue to richen relative to USTs, Jason Wong said.

Muni yields were bumped one to eight basis points, depending on the scale, while UST yields fell three to 10 basis points, with the greatest gains out long.

Tax exemption concerns — though an elimination is unlikely — and the loss of federal stimulus will "most assuredly pull forward delayed issuance, with the first half of 2025 volume to exceed second half volume," said James Welch, a municipal portfolio manager at Principal Asset Management.

To close out the day, USTs remained mixed, with yields rising on the short end and falling out long, while munis were changed up to a basis point, depending on the curve.

Investors added $741.7 million to municipal bond mutual funds in the week ending Wednesday, following $2.078 billion of inflows the prior week, according to LSEG Lipper data.

Even with the possibility of inflation and fiscal policy-induced headwinds, there is much to be optimistic about in the muni market, despite some possible near-term turbulence, said GW&K strategists.

The Fed meets this week, but the probability of another cut at Wednesday's meeting seems low amid elevated inflation and growth data, said Matt Fabian, a partner at Municipal Market Analytics.

Tech stocks suffered on "worries that Beijing is becoming increasingly competitive in the high-stakes artificial intelligence race," said José Torres, senior economist at Interactive Brokers.

Issuance for next week falls to an estimated $5.151 billion, with $3.959 billion of negotiated deals and $1.193 billion of competitive deals on tap.

Investors added $2.028 billion to municipal bond mutual funds in the week ending Wednesday, following $251.7 million of outflows the prior week, according to LSEG Lipper data.

Issuance was led by a $2 billion retail pricing from the University of California in the negotiated market and a $1.2 billion competitive deal from Washington.

Underperforming since the calendar turned, "munis have continued to cheapen over the past three weeks as Treasury returns are about flat for the year while munis are down 0.31%," said Jason Wong, vice president of municipals at AmeriVet Securities.

The Regents of the University of California leads the negotiated calendar with $2 billion of general revenue refunding bonds.

Munis "responded in part to a better UST session [Wednesday] but weren't in a position from a supply standpoint to attempt to match the 10-15 basis point rally in taxables," said Kim Olsan, a senior fixed income portfolio manager at NewSquare Capital.

Municipals are underperforming USTs month-to-date, with the Bloomberg Municipal Index showing losses of 1.02% versus 0.92% for USTs as of Tuesday, but both are outperforming losses in corporates that are seeing 1.23% losses in January.

"Even though it will be priced to sell, such large supply in one week may be a struggle for the asset class," said Anders S. Persson, Nuveen's chief investment officer for global fixed income, and Daniel J. Close, Nuveen's head of municipals.

The muni market also faces an elevated new-issue calendar, which may put additional pressure on muni yields. Bond Buyer 30-day visible supply sits at $17.57 billion.