Securitization

After the week's losses, August could kick off with a "buyer's market" for munis, Peter DeGroot wrote for J.P. Morgan.

Wednesday's FOMC meeting helped sparked a selloff in U.S. Treasuries. On Thursday, it was the muni market's turn to react, MMA's Kevin McGuigan said.

The muni market is enjoying more favorable tax-exempt yields, NewSquare Capital's Kim Olsan said; they may be helping the market ignore the fallout from the FOMC meeting.

The muni market is going through a period of "consolidation, not to be confused with deterioration," according to Hennion & Walsh's James Pruskowski.

The strong day for munis and USTs is likely due to the United States pausing its military strikes on Iran, said Ajay Thomas, head of public finance at FHN Financial.

Issuance is an estimated $7.558 billion for the week of July 27, with $6.709 billion of negotiated deals on tap and $849.4 million of competitives, according to LSEG.

Muni yields were cut eight to 13 basis points, depending on the curve, while UST yields rose two to six basis points, pushing the two-, three-, five-, seven- and 10-year USTs to yearly highs.

The muni market's losses were likely driven by USTs, said Chad Farrington of DWS — but they could show the beginnings of weakening demand.

Tariff threats, international conflicts and inflation concerns are working "in tandem on the municipal side to slow down some of the aggressive interest that was there in the beginning of summer," Sage Advisory's Jeff Timlin said.

Geopolitical uncertainty will keep being a challenge for risk assets, according to James Pruskowski, managing director at Hennion & Walsh. But the muni market will still benefit from strong supply and demand.

Issuance is an estimated $10.567 billion this week, with $8.948 billion of negotiated deals on tap and $1.62 billion of competitives, according to LSEG.

USTs ended the week looking strong after a positive CPI report, MMA's Kevin McGuigan said, while munis finally seem to have corrected from their "extremely rich" ratios.

Munis finally corrected Thursday after UST yields prompted investors to reevaluate the "overstretched" asset class, NewSquare Capital's Kim Olsan said.

The focus on Wednesday has been on the primary market, particularly the six-part $2.4 billion deal from the New York State Thruway Authority, which came a little wider than where the issuer had been trading in the secondary market.

The Aquarion deal is joined this week by two other sizable deals: the New York State Thruway Authority's $2.444 billion state personal income tax revenue bonds, and the New Jersey Turnpike Authority's $1.06 billion turnpike revenue bonds in two deals.

Inflation concerns have the UST market betting on a "higher-for-longer" interest rate environment, Chris Brigati wrote for SWBC.

Robust demand is one of several drivers supporting the muni market even in the wake of ongoing uncertainty around economic growth, inflation and interest rates, said Daryl Clements, a portfolio manager at AllianceBernstein.

A big story this year has been demand, which is supporting the market, said Tom Kozlik, head of public policy and municipal strategy at HilltopSecurities.

Right now, rates can't get any traction due to "Iran re-escalating, hawkish Fed minutes, Treasury auctions [and] AI bond supply crowding credit," among other factors, said James Pruskowski, managing director at Hennion & Walsh.

Resuming the war with Iran has renewed volatility for munis and Treasuries.