The municipal market has been experiencing firmness ahead of an expected uptick in issuance next week. This comes as U.S. Treasury yields have seen a slight decline and equities have ended on a mixed note. Barclays strategists Mikhail Foux and Clare Pickering have pointed out that the rally in USTs has been supported by softer economic data, leading to a drop in yields by 18 to 24 basis points for the week and a larger decline of 20 to 30 basis points month-to-date. In contrast to late May, when the muni market showed signs of weakness, the current rally has brought about a sense of stability.
Expectations for the Market Going Forward
Looking ahead, BofA strategists predict that the rally in the muni market will continue into the summer, albeit in a gradual and methodical manner. They believe that a solid job market will help support muni credit spreads, driving them towards newer lows. However, they express caution regarding the high-yield index, indicating a possible exception in its performance. The consensus among strategists is that a re-flattening of the UST rates market could further accelerate the muni market rally, potentially taking place after September.
The forthcoming week is expected to see an increase in the new-issue calendar to $7.284 billion, with negotiated deals dominating the market with $6.281 billion. The negotiated calendar is led by projects such as the New York Transportation Development Corp.’s green AMT special facilities revenue bonds for the John F. Kennedy International Airport project, showcasing a commitment towards sustainable initiatives within the muni market. On the competitive front, Olathe, Kansas, is set to lead with $107 million of general obligation temporary notes.
Changes in AAA Scales and Yield Curves
Refinitiv MMD’s scale has seen a bump of three to four basis points across various maturities, reflecting shifts in the market sentiment. The ICE AAA yield curve has also experienced slight adjustments, suggesting an ongoing evolution in investor preferences and risk appetite. Furthermore, the S&P Global Market Intelligence municipal curve has been bumped by four to five basis points, indicating fluctuations in yield levels. These changes highlight the dynamic nature of the muni market and the need for constant monitoring of trends.
Several notable issuers are set to enter the market with new offerings, ranging from green bonds to revenue refunding bonds and school building bonds. Entities such as the New York State Housing Finance Agency, Ohio, and the Pennsylvania Turnpike Commission are among those planning to issue bonds next week. This diverse range of offerings showcases the depth and breadth of the muni market, with various sectors tapping into the market for funding purposes. Investors and analysts are closely monitoring these developments to assess their impact on market dynamics.
The muni market continues to display resilience and adaptability in the face of changing economic conditions and investor preferences. The current firmness in the market, coupled with expectations of a gradual rally, underscores the underlying strength of munis as an asset class. As new issuances enter the market and yield curves adjust, market participants must stay vigilant and proactive in navigating these evolving trends to make informed investment decisions.