Securitization

The rally stemmed from the weak nonfarm payrolls report and revisions brought down the three-month average to 29,000 jobs per month, further solidifying the chance of a rate cut in September, said Chris Brigati, managing director and CIO at SWBC.

Investors added $672.3 million to municipal bond mutual funds in the week ended Wednesday, following $590.4 million of inflows the prior week, according to LSEG Lipper data.

Looking solely at internal factors, "the municipal market itself is still doing well, reasonably via the temporary drop in new issue supply amid a more lasting reduction in reinvestment flows," said Matt Fabian, a partner at Municipal Market Analytics.

Thanks to strong technicals and the anticipated interest rate cut by the Federal Reserve at its September meeting, municipal bonds posted positive returns of 0.87% in August, reversing their losses of 0.20% in July, according to Jason Wong, vice president municipals at AmeriVet Securities.

Issuance for the week of Sept. 2 is at an estimated $7.457 billion, with $6.179 billion of negotiated deals and $1.278 billion of competitive deals on tap, according to LSEG.

With the break in issuance this week, the market has firmed a bit, said Tim McGregor, managing partner at Riverbend Capital Advisors.

While issuance has been on a record pace this year, this week sees a slight slowdown in activity, caused by participants going on vacation, said Jeff Timlin, a partner at Sage Advisory.

While issuance is up year-over-year, weeks like this can be difficult to find the right deals, said Whitney Fitts, director of municipal portfolio management at Appleton Partners.

"We expect subdued activity again [this] week heading into the Labor Day holiday," Birch Creek strategists said.

Munis underperformed a UST rally, which had everything to do with Powell's speech at the Jackson Hole symposium and future Fed action, said Cooper Howard, a fixed income strategist at Charles Schwab.

A state lawmaker is asking the court to invalidate a 2022 nearly $700 million bond sale due to inadequate audits by the Oklahoma Corporation Commission.

A possible explanation is that the massive inflows into mutual funds are a parallel move to large inflows into the Capital Group Municipal High-Income ETF, which saw the biggest inflow of a ETF on Friday at $1.5 billion, said Pat Luby, head of municipal strategy at CreditSights.

FOMC meeting minutes "clearly show why they didn't cut rates," said Northlight Asset Management Chief Investment Officer Chris Zaccarelli.

The muni bond market remains strong, supported by Treasury market strength, said Anders S. Persson, Nuveen's chief investment officer for global fixed income, and Daniel J. Close, Nuveen's head of municipals.

"If unfavorable economic numbers ... are released next month, we should expect a hold on any rate cuts and a possible rate hike to follow, putting a damper on any positive returns for the rest of the year," said Jason Wong, vice president of municipals at AmeriVet Securities.

Issuance for the week of Aug. 18 remains elevated at an estimated at $6.166 billion, with $5.065 billion of negotiated deals and $1.101 billion of competitive deals on tap, according to LSEG.

The latest inflation report — the producer price index — threw a monkey wrench into expectations for a big rate cut next month, according to some economists, may put into question any easing in September.

Muni performance is likely to recover during the second half of the year, said Cooper Howard, a fixed income strategist at Charles Schwab.

Through June 30, BAM insured 11 transactions with par of $100 million or more, with four more deals coming since then, the company said.

"The combination of stronger core and softer headline readings has left some traders struggling for direction," said Daniela Sabin Hathorn, senior market analyst at Capital.com. "There is a reason to be both bullish and bearish depending on which CPI reading you wish to focus on."