Treasury bonds

John Luke Tyner, fixed income analyst at Aptus Capital Advisors, discusses yield curve inversion with Bond Buyer Managing Editor Gary Siegel. Tyner looks at recession possibilities and how the Federal Reserve’s actions will impact the economy, the yield curve and recession. (23 minutes)

As investors shift the focus from inflation to recession concerns, fixed income markets, including munis, may regain some of the year's losses.

A bearish market sentiment and elevated muni to UST ratios often represent a buy signal. Taxable equivalent yields are compelling for buy-and-hold investors, analysts say.

The rapid swing to lower yields over the past week has led to a sunnier outlook for the summer reinvestment season, but uncertainties on the economic front, rate volatility, and supply questions hang overhead.

Investors pulled $7.270 billion from muni bond mutual funds in the week ending May 11, per ICI data, while exchange-traded funds saw $1.756 billion of inflows, the fourth week of record inflows.

Next week's supply is slated to be $10.166 billion, $8.982 billion of negotiated deals and $1.184 billion of competitive loans. A larger primary calendar is led by two billion-dollar airport deals.

The Investment Company Institute on Wednesday reported $2.728 billion of outflows in the week ending March 23, down from $3.615 billion of outflows in the previous week.

Next month’s Easter holiday in the U.S. is poised to create cash-flow headaches for the Federal Reserve and investors in Treasury debt.

DASNY leads the calendar with $2.3 billion of exempt personal income tax bonds and $662.32 million of taxables. Potential volume is slated to be $5.11 billion, with $4.392 billion of negotiated deals and $718.1 million of competitive loans.

Market volatility has risen significantly, particularly in the last several weeks, with daily Treasury yield swings of 10 basis points or more becoming the norm with municipals struggling to stabilize.

Refinitiv Lipper reported outflows after inflows of $216 million the previous week.

The U.S. Treasury selloff caught up to tax-exempts with two to three basis point cuts to scales, but munis still outperform.

Municipals triple-A benchmarks continue the trend of ignoring other markets to start 2022. The new year will likely usher in slower growth and continued inflationary pressures, analysts said.

U.S. Treasuries saw losses pushing municipal to UST ratios on the 10- and 30-year lower again.

The Build Back Better in its current form essentially has been killed by Sen. Joe Manchin, likely limiting the potential for tax hikes in the coming year.

The $2.5 trillion increase is expected to get the U.S. through 2023.

With the leadership questions mostly answered, the Fed must figure out what to do about inflation. The markets expect the Fed will have to raise rates sooner than planned, and perhaps speed up taper to do so.

This week will be all about the secondary market given that the majority of issuance was priced earlier in the month while Dec. 1 coupon payments should make secondary offerings look attractive.

The Thanksgiving holiday-shortened week, next-to-no supply and few economic data releases should keep munis steady.

The Investment Company Institute reported $657 million of inflows into municipal bond mutual funds while ETFs saw $828 million of inflows, a massive increase over the $43 million reported a week prior.