Securitization

"In theory at least, municipal yields should be able to stabilize here; levels remain attractive for pure income buyers while more sustainable constructive fund inflows are just enough to speak for rising issuance in the absence of meaningful reinvestment," said Matt Fabian, president of Municipal Market Analytics.

The financing challenges facing both Brightline projects have translated into falling bond prices.

Investors sued after the fund's sudden June selloff.

As the technical picture tends to turn "more favorable" during November and December, Birch Creek strategists believe "the wider new issue concessions brought about via the heavy new issue calendar will likely be rewarded."

The average weekly issuance is at least $10 billion, said John Flahive, head of investment solutions and co-head of municipal bonds at Insight Investment.

Municipals are impacted by fluctuating supply and demand influences more than most other markets, said Jeff Timlin, a partner at Sage Advisory.

Carving up risk allows buyers who normally shy away from junk bonds to buy the pooled securities.

The large issuance of munis this year, up 12.9% year-to-date, "disadvantaged" the asset class compared to other U.S. fixed income assets for a majority of 2025, said Pat Haskell, head of the municipal bond group at BlackRock.

Last week, the muni market saw a "slowdown in activity" after the asset class saw its best monthly performance in nearly two years, said Birch Creek strategists.

The Texas Transportation Finance Corp. leads the new-issue calendar with $1.739 billion of subordinate tier toll revenue and refunding bonds, followed by New York City with $1.5 billion of general obligation bonds.

If the shutdown lingers, disruption to key economic data releases could increase market uncertainty, said Tom Kozlik of HilltopSecurities.

Summit Utilities Oklahoma used reserve funds to help cover an Oct. 1 payment on taxable bonds sold in 2022 through the Oklahoma Development Finance Authority.

October has historically not been "particularly kind to the municipal market, as it tends to be one of the heavier supply months of the year," said Daryl Clements, a portfolio manager at AllianceBernstein.

The muni market may be shaken by a government shutdown, driving short-term volatility and wider spreads, said James Pruskowski, a public finance strategist.

Muni yields rose up to eight basis points, depending on the scale, with the largest losses again on the front-end of the curve.

The short-end correction has been "driven by a solid labor market report, which pushed Treasury yields higher as expectations for additional Fed rate cuts tempered," said Alice Cheng, director of municipal credit and investor strategy at Janney.

Retail offerings from California and Connecticut led the market Wednesday.

Secondary selling pressure and the larger calendar weighed on the market Tuesday.

"On a month-to-date basis, AAA munis have outperformed Treasuries across the entire curve. … This outperformance can be attributable to an improvement in market technicals," said Daryl Clements, a portfolio manager at AllianceBernstein.

Munis have outperformed USTs and corporates by more than 1.0% month-to-date on the heels of this rally so far, BofA strategists said.