Securitization

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.

The muni market is experiencing "some short-term optimism," said Hilltop Securities' Tom Kozlik, but there are still "pressures that could potentially be with us for not just weeks, but months."

Markets grew stronger upon news of the extended ceasfire in Iran, but the reaction was less pronounced than Tuesday's rally.

June redemptions are $44.4 billion. July and August will see $37.7 billion and $38.4 billion returned, respectively, said Pat Luby, head of municipal strategy at CreditSights.

The muni market's gains are likely a continuation of Tuesday, Charles Schwab's Cooper Howard said, but markets could turn sour after personal consumption expenditures data is released Thursday.

Munis and USTs both received a boost from news of a possible peace deal with Iran.

The market has seen a trend of "happy endings to each week, disappointing Mondays," according to James Pruskowski, managing director at Hennion & Walsh.

"We're going to have some weak days, we're going to have some stronger days, maybe they wash out against each other," said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.