Secondary bond market

Muni returns so far in August are in the black, with the Bloomberg Municipal Index at 0.53% this month and 1.04% year to date. High-yield continues to outperform with returns at 0.68% in August and 5.99% in 2024.

The past several trading sessions have seen "crazy volatility," said Jennifer Johnston, director of research of municipal bonds at Franklin Templeton.

Recent events have been a "roundtrip" for rates, starting with the sentiment shifting from slowing inflation to a softening labor market, said James Pruskowski, chief investment officer at 16Rock Asset Management.

This week's new-issue calendar will be "outsized," said Anders S. Persson, Nuveen's chief investment officer for global fixed-income, and Daniel J. Close, Nuveen's head of municipals.

All eyes now turn to the September Federal Open Market Committee meeting where the Fed is expected to cut rates, but market participants are mixed on whether it will be a 25- or 50-basis-point cut.

Municipal bond mutual funds saw inflows as investors added $1.112 billion to funds after $892.2 million of inflows the week prior, according to LSEG Lipper.

"The Fed remains data dependent as always, but it now appears that the 'more good data' bar is not as high as it was before, particularly with labor market developments becoming more important," said Michael Gregory, deputy chief economist at BMO Economics.

Yields may move lower after the Federal Reserve "communicates its goals to ease policy in coming meetings," said Tom Kozlik, managing director and head of public policy and municipal strategy at HilltopSecurities.

"The overall muni market appears to be in a good balance despite the hefty slate of primary issuance that has occurred over the past few months," Birch Creek Capital strategists said.

The muni market tends to have "remarkable patience" in relation to USTs, said BofA strategists.

Despite munis being mixed Thursday, the muni AAA yield curve remains inverted, said Taylor Huffman, a client portfolio manager at PTAM.

"While supply has been outsized over the last several weeks, the market has also seen outsized reinvestment demand over the last several months," said Nuveen strategists.

This week again sees elevated supply, as issuance sits at $9.673 billion, with Tuesday being a very busy day.

The initial reaction was a little bit a flight-to-quality trade in rates, which is supportive of USTs and munis as safe-haven assets do well during times of uncertainty, said Chris Brigati, senior vice president and director of strategic planning and fixed income research at SWBC.

The new-issue calendar is at $9.7 billion the week, led by the Texas Transportation Commission with $1.7 billion of first-tier and second-tier revenue refunding bonds.

Municipal bond mutual funds saw inflows as investors added $891.4 million to funds after $775.3 million of inflows the week prior, according to LSEG Lipper.

Single party control of a state eases perception of bond default risk associated with laws like Chapter 9, a study found.

Issuance has remained robust over the past two weeks, with Wednesday being a particularly busy day.

Volume is predicted to continue at "robust levels," possibly through the fourth quarter, said Matt Fabian, a partner at Municipal Market Analytics.

Financial markets are trying to "absorb" the outcome of higher odds of Trump winning in November, said James Pruskowski, chief investment officer at 16Rock Asset Management.