The muni market faces a week of elevated issuance as the market remains supported by favorable seasonal technicals.
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August can be a little bit more of a volatile month, both to the upside and downside, but munis are in a temporarily good position after the rally two weeks ago and last week’s strength, said Jeff Timlin, managing partner and head of municipal bond investing at Sage Advisory.
This week, issuance rises to an estimated $14.692 billion, with $12.326 billion of negotiated deals on tap and $2.366 billion of competitives, according to LSEG.
The Los Angeles Department of Airports leads the new-issue calendar with $2.706 billion of senior revenue and refunding revenue bonds, followed by the New York City Transitional Finance Authority with $1.915 billion of future tax secured subordinate bonds — $1.5 billion in the negotiated market and $415 million in the competitive market.
Another sizable new-issue calendar this week will bring August’s total to nearly $50 billion, around where the previous two August supply figures ended, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.
Premarketing activity can be expected to get ahead of investor demand, especially for large issues from the Los Angeles airport, New York City TFA and Michigan Trunk Line Highway revenue bonds, she said.
“The weight of issuance continues to support a higher yield range, where cross-market valuations remain favorable in intermediate and long maturities,” Olsan said.
Despite monthly
Elsewhere, muni valuations are no longer as appealing as they were following July’s sell-off, Barclays strategists said.
“While seasonal reinvestment demand and strong investor inflows have supported performance thus far in August, the technical backdrop is likely to become less favorable as the market moves beyond the summer redemption period,” they said.
Concurrently, liquidity conditions usually deteriorate as the year progresses, especially “if issuance remains elevated and dealer balance sheets become more constrained,” Barclays strategists said.
Therefore, they remain “constructive” on munis in the long-term but are not ready to become more bullish.
“With valuations richer across much of the curve and technical tailwinds likely to fade, we believe patience is warranted and would prefer to wait for a more attractive entry point before adding risk,” Barclays strategists said.