Municipal New Issuance:  Negotiated issuance continues to be light as last weeks issuance only totaled to just over $5.3 billion, with the largest deal being the $867 million New York City Transitional Finance Authority deal which AmeriVet was a Selling-Group-Member. The second largest deal of the week was the $478 million Charlotte North Carolina Water and Sewer Systems Revenue bond issue. AmeriVet was also in one other deal for the week which was the $98 million Maryland Department of Housing and Community Development.

Municipal Secondary Trading: Secondary trading continues to be light as the fourth week August only had roughly $32.98 billion in trades. The final two weeks of August are usually light for secondary trading as many are take off and return back in September. As with secondary trading being down for the week, we did see customer’s bids-wanted down as well. According to Bloomberg, customer’s bids-wanted to just over $5 billion for the week compared to $5.7 billion the prior week.

Municipal Spread: Muni yields continue their upwards climb this week as yields on 10-year notes rose by 7.5 basis points to 2.54%. Muni yields are virtually unrecognizable from the start of this year and even back in August 2020 when we saw 10-year notes at a low of .55% Yields have risen sharply this month with 3-month bonds rising by 160 basis points to 2.35%, 5-year notes have risen by just 45 basis points,10-year notes by 30 basis points, and 30-year bonds by 40 basis points. This has caused the muni curve to invert which is something that we don’t see in muni bonds. With the sharp rise in munis this week, they continued to underperform compared to Treasuries as the 10-year ratio is now yielding 83.98% compared to 83.73% a week ago. Although the muni curve is still inverted, we did see it steepen this week by 5.3 basis points to 104 basis points.

Municipal-bond mutual funds continue to see investors pull cash out of their funds. According to Refinitiv Lipper US Fund Flows data, investors pulled roughly $1.2 billion from municipal-bond mutual funds which follows the prior weeks outflow of $229 million and the third week of withdrawals. Exchange traded funds also saw a small outflow of just $472 million.

Since the start of the summer, muni bonds have become more attractive on a spread, ratio, and as well on a yield perspective. With Fed Chair Jerome Powell speaking on last Friday, he signaled that the US central bank will continue to raise rates and not reverse course any time soon. This should bode well for muni bonds and they should become even more attractive. With two and three-year muni-UST ratios hovering around 66%, the five-year at 71%, 10-year at 84%, and 30-year at 101%, we could see those ratios go even higher as the Fed continues to combat inflation by keeping a 75-basis point rate hike on the table.

Municipal Supply: As we head into the final week of summer, we will see a small calendar with just $5.8 billion in expected negotiated issuance. The largest deal of the week will be the $1.7 billion City of Chicago O’Hare International Airport deal. The second largest deal of the week will be the $696 million Public Service Company of Oklahoma taxable issuance. AmeriVet will be in one issue this week which will be the $206 million South Carolina State Housing Finance and Development Authority.