The recent selloff in the U.S. Treasury market has had a significant impact on the municipal bond market. Although municipals felt the pressure of this selloff, they managed to outperform their taxable counterparts. The rise in triple-A yields by two to four basis points, depending on the yield curve, is a cause for concern. On the other hand, U.S. Treasury securities saw losses of up to 15 basis points on the short end, leading to lower municipal to UST ratios in that segment.
Despite the volatility in the market, municipal bond mutual funds have seen consistent inflows. Investors added $528.7 million to these funds after already contributing $674.1 million the previous week. This marks seven straight weeks of inflows, indicating a level of confidence in the municipal bond market.
High-yield bonds continue to show strength, with inflows of $230.6 million following $493.2 million of inflows the previous week. This demonstrates that investors are still willing to take on more risk in pursuit of higher yields.
In the primary market, several large deals were priced and, in some cases, upsized. For example, the Triborough Bridge and Tunnel Authority had a slightly upsized $699.405 million of MTA Bridges and Tunnels Revenue Bonds deal. Similarly, the New Jersey Health Care Facilities Financing Authority and the Reno-Tahoe Airport Authority also priced substantial bond issuances.
The Bond Buyer 30-day visible supply has grown to $17.64 billion, coinciding with a significant amount of reinvestment cash hitting the market. Analysts are optimistic about the prospects for the municipal bond market, particularly in the 1-10 year portion. The historically lower reinvestment amounts in September suggest a potential upward trend in rates compared to August.
Refinitiv MMD, ICE AAA yield curve, S&P Global Market Intelligence municipal curve, and Bloomberg BVAL all saw adjustments in their scales. Conversely, Treasuries experienced a sell-off, with yields rising across various maturities.
Overall, the municipal bond market is showing resilience in the face of economic uncertainty. While the recent selloff in the U.S. Treasury market has created some challenges, municipal bonds continue to attract investors. The inflows into municipal bond mutual funds, the strength in high-yield bonds, and the activity in the primary market are all positive indicators for the market. Analysts are closely watching the visible supply and market outlook for potential opportunities. Despite the current volatility, there is a sense of cautious optimism about the future of the municipal bond market.