The municipal bond market showed little movement on Monday, contrasting with slight losses in the Treasury market and a positive performance in equities. This relative stability comes amidst a smaller calendar of new issuances and economic uncertainty as the Federal Open Market Committee (FOMC) meeting looms. The muni-to-Treasury ratios held steady, with the 30-year ratio slightly higher at 82%. While USTs rallied last week, the muni market managed to shake off negative performance trends thanks to a drop in yields.
Yields in the muni market fell for the first time in three weeks, with the 10-year notes dropping by 17.6 basis points to 2.93%. This pushed yields below the 3% mark for the first time since May 23rd, marking a positive turn of events for investors. The 10-year muni-to-UST ratio improved, indicating that munis outperformed Treasuries over the past week. Despite year-to-date losses of 0.86%, munis are showing signs of recovery as they returned 1.07% month-to-date.
The influx of $16 billion in new issuances last week could have been perceived as a market saturation risk, but market participants were surprised by the strong demand. Oversubscribed deals and a fear of missing out on favorable valuations led to increased muni buyer activity. Reinvestment demand from principal and interest payments totaling $26 billion as of June 1st also played a role in supporting the market. As issuance falls to $5.2 billion this week, the market is expected to continue rallying.
In the primary market on Monday, Raymond James accelerated the issuance of $715.45 million in gas supply revenue bonds. Despite the smaller issuance volume this week, several large deals are expected in the coming weeks. The negotiated calendar includes notable issuances from Los Angeles County, the Massachusetts Water Resources Authority, and the New York City Housing Development, among others.
Various yield curve data sources showed minimal changes in yields across different maturities. The ICE AAA scale exhibited slight adjustments in the five-year, 10-year, and 30-year maturities. The S&P Global Market Intelligence municipal curve remained unchanged, while Bloomberg BVAL reported marginal shifts in yields for certain maturities. In contrast, Treasuries experienced weakness at the close of the day.
Several significant issuances are scheduled to price on Tuesday, including tax and revenue anticipation notes from Los Angeles County, general revenue bonds from the Massachusetts Water Resources Authority, and multi-family housing revenue bonds from the New York City Housing Development. These offerings reflect a diverse range of projects and entities tapping into the municipal bond market for financing needs.
Amidst a backdrop of economic uncertainty and shifting market dynamics, the municipal bond market has shown resilience and stability. Despite challenges such as rising yields and new issuances, investor sentiment remains positive, driving demand for munis. As market participants navigate the ever-changing landscape, monitoring yield movements and upcoming deals will be crucial in understanding the market’s trajectory. The muni market’s ability to weather uncertainties and adapt to changing conditions underscores its importance as a critical segment of the broader financial landscape.