Municipal New Issuance: The third week of May had a total negotiated volume of just over $7 billion for the week as new issue supply continues to struggle due to rising yields and many issuers placing their issues on a day-to-day status or completely postponing their issuance. The largest deal of the week was the $1.6 billion State of Illinois issuance, which almost half of the issue consisted of refunding bonds. This was their first big issuance since being upgraded by all three major rating agencies. AmeriVet was in the next largest deal as a Selling-Group-Member which was the $1 billion New York City General Obligation issue which consisted of Tax-Exempt and Taxable bonds. AmeriVet was also in one other issue which was the $149 million Maryland Community Department. The one deal that gained the most attention for the week was the Princeton University $600 million issuance which was divided up equally between Taxable and Tax-Exempt bonds as it follows Harvard University and Massachusetts Institute of Technology who have issued earlier this year. On the Taxable portion, the bonds maturing in 2052 were offered at part with a spread of 110 basis points over Treasuries but later tightened to 100 basis points, due to demand as well as the really in Treasures. Princeton University Tax-Exempt bonds also saw some demand as their bonds maturing in 2027 tightened by 5 basis points from its initial sale.

Municipal Secondary Trading: Secondary trading continues to be abnormally high as market volatility continues to hamper the muni markets. Last week, secondary trading totaled to just over $53 billion with 56% of all secondary trades being clients buying as many are taking the opportunity to buy cheap bonds. With the high secondary trading volume, we continue to see large number of clients bids-wanted who put up over $9 billion for the week.

Municipal Spread: Municipal yields fell slightly over the past week with yields falling on 10-year notes by 2.2 basis points in the past week to 2.90%. With municipal yields rising, they continued to lag US Treasuries as debt maturing in 10 years is now yielding 104.30% of Treasuries compared the prior week when the ratio was at 100.03%. One month ago, those same ratios were at 93.33%. Munis tend to follow the Treasury movement but usually on a lagging basis, however, in recent weeks munis have ignored any Treasury strength as Treasuries have rallied by over 35 basis points in the past 2 weeks while munis have sunk by over 7.2 basis points in the same time frame. With the rise in yields, the muni curve did steepen by 11.5 basis points in the past week to 104 basis points.

Municipal bond mutual funds continue to see outflows as investors pulled about $2.7 billion from those mutual funds marking the 14^th consecutive week of withdrawals according to Refinitiv Lipper US Funds. Muni-bond funds have lost a record $66 billion so far this year as the Federal Reserve raised rates, high inflation running rampant, and the volatility of the market rattled retail investors. The previous record of outflows was back in 2013 in which investors pulled $63 billion from mutual funds. This selloff has sent muni bonds tumbling with the Bloomberg Municipal Bond Index losing roughly 10.4% alone this year with 10-year muni bonds rising by almost 190 basis points year-to-date.

Fixed income markets have had a tough 2022 but municipal bonds have been one of the ones that have struggled the most with munis losing about 10.4% year-to-date while US Treasuries have lost only 8.4% in the same timeframe. Fortunately, munis have fared better than corporate bonds as they are down by 13.34%. Muni bonds are on pace to have their worst year on record amid soaring inflation and the Federal Reserve’s policy tightening. With the Fed expecting to raise by 50 basis points in each of the next few fed meetings, we should expect to see muni returns continue to be in the negative for the remainder of the year.

Municipal Supply: This week’s negotiated calendar will be light as we head into Memorial Day weekend. We are expected to have a volume of just $4.4 billion on the calendar with one deal taking up almost a quarter of this week’s issuance. AmeriVet will be in the largest deal of the week which will be the State of Connecticut issuance, which is expected to issue $1.04 billion in bonds that will consist of Tax-Exempt and Taxable bonds with some series being refunding bonds.