Securitization

Yields may move lower after the Federal Reserve "communicates its goals to ease policy in coming meetings," said Tom Kozlik, managing director and head of public policy and municipal strategy at HilltopSecurities.

Concerns have been raised about audits related to nearly $2.9 billion of ratepayer-backed bonds sold for Oklahoma utilities in 2022.

"The overall muni market appears to be in a good balance despite the hefty slate of primary issuance that has occurred over the past few months," Birch Creek Capital strategists said.

The muni market tends to have "remarkable patience" in relation to USTs, said BofA strategists.

Despite munis being mixed Thursday, the muni AAA yield curve remains inverted, said Taylor Huffman, a client portfolio manager at PTAM.

"While supply has been outsized over the last several weeks, the market has also seen outsized reinvestment demand over the last several months," said Nuveen strategists.

This week again sees elevated supply, as issuance sits at $9.673 billion, with Tuesday being a very busy day.

The initial reaction was a little bit a flight-to-quality trade in rates, which is supportive of USTs and munis as safe-haven assets do well during times of uncertainty, said Chris Brigati, senior vice president and director of strategic planning and fixed income research at SWBC.

The new-issue calendar is at $9.7 billion the week, led by the Texas Transportation Commission with $1.7 billion of first-tier and second-tier revenue refunding bonds.

Municipal bond mutual funds saw inflows as investors added $891.4 million to funds after $775.3 million of inflows the week prior, according to LSEG Lipper.

Single party control of a state eases perception of bond default risk associated with laws like Chapter 9, a study found.

Issuance has remained robust over the past two weeks, with Wednesday being a particularly busy day.

Volume is predicted to continue at "robust levels," possibly through the fourth quarter, said Matt Fabian, a partner at Municipal Market Analytics.

Financial markets are trying to "absorb" the outcome of higher odds of Trump winning in November, said James Pruskowski, chief investment officer at 16Rock Asset Management.

In the summer, the market will largely move "sideways" and underperform late in the third quarter to early in the fourth quarter, "while possibly recouping most of its losses late in the year depending on the outcome of November elections," said Barclays strategists.

"Bond yields are plunging [Thursday] as rate cut expectations soar following this morning's consumer price index release, which depicted the first month of deflation since July 2022," noted José Torres, senior economist at Interactive Brokers.

Large-scale issuers, including state-level transportation authorities, counties and sales tax entities, have "planned volume to coincide with implied demand," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Overall, demand is "high," an ongoing tailwind for munis, along with solid fundamentals, Nuveen strategists said.

Competitive deals are slated to total about $2.9 billion, near the highest for any week this year, said J.P. Morgan strategists.

The new-issue calendar rises to $9.175 billion next week, with $6.089 billion of negotiated deals coming to market and $3.086 billion of competitive deals on tap.