Secondary bond market

Despite the firmer tone Tuesday, May performance has put munis on track for their worst May since 1986.

The U.S. economy is "too resilient and this will force the Fed to not only deliver more tightening but also to keep rates higher for much longer," OANDA's Edward Moya said. NYC and Connecticut GOs on tap.

Refinitiv Lipper reported $847.068 million of outflows from municipal bond mutual funds, $420.675 million of which was high-yield.

The Investment Company Institute reported investors pulled another $137 million out of municipal bond mutual funds in the week ending May 17, after $290 million of outflows the previous week.

"It's good news/bad news for fixed-income markets," said Nuveen strategists Anders S. Persson and Daniel J. Close.

Since the 52-week low on April 12, yields have risen by an average of 46 basis points.

"Ultimately, the case for fixed income generally, and munis specifically, is much stronger today than it was a year ago," said Nick Vendetti, municipal bond fund portfolio manager with Allspring Global Investments.

Puerto Rico must take additional steps to be able to regain market access, they said.

For the week, triple-A muni yields rose between 11 and 29 basis points, according to MMD, while UST yields rose 11 to 32 basis points.

"Steep corrections occurring inside 10 years on the curve reflect an ongoing process to reduce a deep inversion," said Kim Olsan, senior vice president of municipal bond trading.

The Investment Company Institute reported investors pulled another $290 million out of municipal bond mutual funds in the week ending May 10.

The market is seeing a supportive environment for munis, said Nisha Patel, managing director of SMA Portfolio Management at Parametric.

"With rates volatility seemingly subsiding in the past few weeks, we could start to see outflows decrease and demand flow back into munis," according to AmeriVet Securities' Jason Wong.

Investors will be greeted Monday with a new-issue calendar estimated at $6.018 billion with a few bellwether, triple-A names coming from Loudoun County, Virginia, Frederick County, Maryland, and Columbia University with sizable deals.

Outflows were seen again from municipal bond mutual funds, though they lessened this week as Refinitiv Lipper reported $101.664 million was pulled as of Wednesday.  

The CPI numbers coming in pretty much as expected "was a relief" to the markets, with the bond market rallying after the release, said Luke Bartholomew, senior economist at abrdn.

Despite the attraction for new issues, sources said there is still uncertainty overall in the municipal market stemming from the regional banking crisis.

Now that there is more "clarity from the Fed on the path of interest rates, both investors and issuers may start to move off the sidelines," said Daniel Close, head of municipals at Nuveen.

Investors will be greeted Monday with a new-issue calendar estimated at $7.588 billion.

The secondary was quiet and the sole deal of size came from a $400 million-plus competitive water and sewer loan from Portland, Oregon. The recent rise in yields makes for more compelling levels.