Securitization

The "week's substantial primary market calendar of $10-plus billion will be a big test for where market demand stands," said Tom Kozlik, head of public policy and municipal strategy at HilltopSecurities Inc.

The 10- and 30-year Treasuries haven't reached these levels since November.

Outflows returned, with the Investment Company Institute reporting investors pulled $1.148 billion from mutual funds in the week ending Feb. 22, after $931 million of inflows the previous week.

The bond markets are witnessing a rare situation that could hinder spending on infrastructure projects around the country, said Amanda Hindlian, president of fixed income and data services at ICE.

The availability of higher yields has brought some investors into the market — even though volume in the primary and secondary markets are on the thin side and the municipal market is a bit of a mixed bag right now.

Investors will be greeted Monday with a new-issue calendar estimated at $4.098 billion.

An improving tone was apparent in the municipal market midweek — after a topsy-turvy ride last week when the market saw a close to 50-basis point adjustment to the front end of the triple-A municipal yield curve.

Earlier in the pandemic, bond values showed a greater divergence among local government issuers tracked, but that has reverted to pre-pandemic levels, although work-from-home and other uncertainties still take a toll.

Inflows continued with the Investment Company Institute reporting investors added $931 million to mutual funds in the week ending Feb. 15, after $2.194 billion of inflows the previous week.

"The close to 50 bp adjustment to the front end of the AAA municipal curve, taken at face value, appears to be a huge step toward pricing normalization for tax-exempts," said Eric Kazatsky, head of municipal strategy at Bloomberg Intelligence.

The taxable bonds, which finally received state approval, will be offered with maturities in 2033 and 2039.

Investors will be greeted Monday with a new-issue calendar estimated at $3.603 billion.

Refinitiv Lipper reported $68.054 million was pulled from municipal bond mutual funds in the week that ended Wednesday after $775.006 million of inflows the week prior.

Inflows continued with the Investment Company Institute reporting investors added $2.194 billion to mutual funds in the week ending Feb. 8, after $1.471 billion of inflows the previous week.

"Markets were expecting (hoping, praying) to get further confirmation that a peak is in and the decline is at least steady, if not accelerating," said Jan Szilagyi, CEO and co-founder of Toggle AI.

February municipal bond activity compared to last month is brisk yet more finicky in the face of an ongoing supply shortage, according to Jeff Lipton, head of municipal credit and market strategy and municipal capital markets at Oppenheimer & Co.

"This peculiar shape of the muni yield curve has created a conundrum for investors, as all high-quality municipal bonds, with the possible exception of the long end, have become quite rich," Barclays strategists said.

Inflows returned as Lipper reported $775.006 million was added to municipal bond mutual funds in the week ended Wednesday after $361.649 million of outflows the week prior.

Although there is some volatility in the municipal market, the landscape is in good shape, according to Cooper Howard, fixed income strategist at Charles Schwab.

"The market started the year with a reduction of the oppressive pressure caused by last year's heavy net outflows from mutual funds," said CreditSights strategists Pat Luby and Sam Berzok.