The municipal bonds market has seen some fluctuations in recent weeks, with notable changes in yields and spreads. According to Barclays strategists Mikhail Foux and Clare Pickering, U.S. Treasury yields fell slightly this week, contributing to firmer municipals. The market rally, which started after showing signs of weakness in May, is expected to continue into the summer. However, BofA strategists predict that the rally will be gradual and methodical, especially in light of a potentially solid job market supporting muni credit spreads.
Barclays strategists have noted significant movements in the muni market, particularly in the high-yield part. While high-yield bonds have shown gains in June, investment-grade returns are still experiencing losses year-to-date across most ratings buckets. This disparity highlights the volatility and unpredictability of the current market conditions.
The new-issue calendar is expected to rise to $7.284 billion next week, with a mix of negotiated and competitive deals coming to market. Notable deals include green AMT special facilities revenue bonds for the John F. Kennedy International Airport New Terminal One project and gas supply revenue refunding bonds. On the AAA scales, MMD’s scale saw slight bumps in yields across different durations, reflecting the ongoing changes in the market.
Looking ahead, Barclays strategists are maintaining a neutral stance, waiting for MMD-UST ratios to cheapen further before considering aggressive moves. They anticipate rate volatility returning in the near future, prompting a more cautious approach to market participation. While taxable muni spreads have been relatively stable, the Build America Bond extraordinary provision redemption craze has slowed down, indicating a cautious market sentiment.
Several entities are set to price bonds next week, including The New York Transportation Development Corp, the Public Energy Authority of Kentucky, and Ohio. These offerings cover a variety of sectors, from transportation to healthcare, reflecting the diverse nature of the municipal bond market. With different credit ratings and terms, investors have a range of options to choose from based on their risk tolerance and investment goals.
The municipal bonds market is currently experiencing a mix of stability and volatility, with changing yields, spreads, and market sentiment. While the overall trend seems positive in the short term, there are lingering concerns about investment-grade returns and future rate cuts by the Federal Reserve. Investors and market participants should remain vigilant and adaptable to navigate the complexities of the municipal bonds market effectively.