The municipal market showed little movement on Monday, outperforming Treasuries, which saw slight losses, as equities ticked up towards the close of the day. Refinitiv Municipal Market Data reported muni-to-Treasury ratios hovering in the mid-60% range for most tenors, indicating relative stability within the market. Despite a recent period of negative performance, spurred by elevated yields and ratios earlier in the year, munis have managed to regain some ground. Notably, yields declined for the first time in three weeks, with 10-year notes falling below 3%, a level not seen since May 23. This positive shift allowed munis to outperform USTs, signaling a potential turnaround in market sentiment.
Recent muni market activity has been characterized by a significant new-issue calendar, culminating in a robust $16 billion in issuance last week. Contrary to expectations, there was strong demand for these deals, leading to oversubscribed offerings and a surge in buyer activity. This wave of buying interest, driven in part by perceived cheap valuations and reinvestment demand from previous issuances, propelled a ‘short covering’ rally in the market. Despite concerns of market saturation due to high issuance levels, the influx of cash from reinvestments provided much-needed support to the market.
Looking ahead, the primary market is set to see a decrease in issuance levels, with only $5.2 billion expected to come to market this week. However, several large deals are on the horizon in the coming weeks, with a Bond Buyer 30-day visible supply of $13.33 billion. Notable offerings include a sizable issuance from the New York Transportation Development Corp. and Tennergy Corp., indicating continued activity in the muni space. Market analysts anticipate continued strength in the market as cash from previous issuances needs to be reinvested, potentially fueling further gains in the near term.
Notable New Issuances
In the primary market activity on Monday, Raymond James accelerated a $715.45 million offering of gas supply revenue bonds. The deal showcased varying tranches with competitive yields, reflecting investor appetite for municipal debt with attractive rates. While issuance levels may dip in the short term, notable deals from entities such as Los Angeles County, the Massachusetts Water Resources Authority, and the New York City Housing Development are slated for pricing in the near future. These upcoming offerings, along with others in the pipeline, are expected to contribute to sustained market activity in the weeks to come.
The broader fixed-income landscape saw a mixed performance on Monday, with Treasuries exhibiting weakness across various tenors. Treasury yields saw modest increases, indicating some investor hesitation amid fluctuating market conditions. Notably, the 10-year UST yield witnessed a notable uptick, potentially signaling a shift in sentiment towards riskier assets. Despite this, municipal bonds managed to hold their ground and outperform Treasuries, showcasing relative stability and resilience in the face of volatile market dynamics.