Securitization

The FOMC's hawkish tone hasn't cost munis yet, but the reaction from USTs may bring pressure, according to NewSquare Capital's Kim Olsan.

Favorable conditions for munis helped the asset class stay afloat, despite a hawkish FOMC.

Munis were little changed, but geopolitical and market conditions could bode well for the sector, MMA's Matt Fabian said.

Investors want to see what happens with the Fed and the Iran peace deal before they react, said Schwab's Cooper Howard.

Supply has been robust in June but issuance falls to an estimated $8.137 billion this week.

There has been some "capitulation" in munis lately. The asset class was outperforming USTs until very recently, said Chris Brigati, managing director and CIO at SWBC.

Many factors impact the performance of munis, and, this year, everything seems to be working for the positive.

Muni yields were cut up to five basis points Thursday, depending on the scale, after yields rose up to two basis points the day prior.

The initial reaction following the CPI report didn't "move the needle" in the bond market, as the 10-year UST yield was just over 4.5%, said Jay Woods, chief market strategist at Freedom Capital Markets.

Volume was robust last week, with a nearly $20 billion new-issue calendar, and while supply dips to $13 billion this week, it will end up higher thanks to four sizable prepay energy deals that priced on Monday and Tuesday.

Issuance continues to drive performance in the muni market. Despite Friday's run-up in USTs, muni yields adjusted "less dramatically," said Ajay Thomas, head of public finance at FHN Financial.

While muni primary supply falls this week, it is still robust. Issuance is an estimated $11.541 billion this week, with $8.501 billion of negotiated deals on tap, according to LSEG.

The muni market's strong performance in May and so far in June has been in line with historical trends, Mikhail Foux wrote for Barclays — but historical trends suggest the market will lose steam soon as supply builds.

"On a broad level, sentiment appears to reflect long-range optimism, though with some expected bumps along the way," NewSquare Capital's Kim Olsan wrote.

The Nassau County Tobacco Settlement Corp's ability to continue as a going concern depends on restructuring its tobacco debt, the county's audit said.

"A lot of retail investors are still very distracted by the stock market," said Pat Luby, head of municipal strategy at CreditSights.

With nearly $4.5 billion of tax-exempt bonds, a restructuring or bankruptcy would be among the muni market's largest to date.

The status of the war in Iran is confusing, Hennion & Walsh's James Pruskowski said, but high absolute rates are giving the muni market a strong start to June.

Considering the "huge calendar this week," NewSquare Capital's Kim Olsan said, "if we can hold steady, that's probably a good result."

This week will see continued stability, given the recent bumps on deals in the primary market last week and the lack of negative headlines about the war with Iran, said Elaine Brennan, executive director of the public finance department at Roosevelt & Cross.