Munis see gains as stocks plunge over AI-related fears

Municipals were firmer Thursday, following higher U.S. Treasuries despite equities tumbling over fears of tighter AI regulation after the Democrats’ rout in the midterm elections.

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“We thought we were out of the woods yesterday as markets rallied post-midterms, but all of a sudden, it’s a total bloodbath here on Wall Street,” said José Torres, senior economist at Interactive Brokers.

Investors are “running for the hills and quickly dumping tech stocks, especially semis, as participants exhibit a change in character regarding how a Democratic majority in both chambers of Congress could derail the AI buildout through greater oversight and tighter regulations,” he said.

The Nasdaq plunged about 5.5% as the Dow Jones Industrial Average fell over 1,800 points.

The trading floor is “full-on risk-off, with traders piling into safe-haven trades,” USTs among them, Torres said.

Retail is underweighted on the bond side, and now they’re seeing the “bloom comes off the rose” on the AI stocks, said Peter Delahunt, managing director and head of the municipal bond department at StoneX.

“So as stocks take on a little bit more risk, and they’re underweighted in bonds. with the forward P&I looking more positive, it sets up well for the bond market to remain firm,” he said.

Muni yields were bumped three to seven basis points, depending on the scale. UST yields fell two to 13 basis points, with the largest gains on the front end at a 3:45 p.m. read.

Overall, the muni market is in a good place technically and fundamentally, Delahunt said.

Bid wanteds have fallen over the past week. “They were elevated for quite some time. But that’s because supply was elevated as well. Now that supply is not as robust … we’re seeing the same thing with bid wanteds,” he said.

While bid wanteds have mitigated a bit back to more normal levels — a possible sign of a slowdown in tax-loss harvesting — there is still cash on the sidelines and upcoming principal and interest rollover redemptions.

Fund flows
Investors added $286.7 million into municipal bond mutual funds in the week ended Wednesday, following $1.739 billion of inflows the prior week, according to LSEG Lipper data.

High-yield funds saw outflows of $53.7 million compared to outflows of $545.7 million the previous week. High-yield funds have seen nine straight weeks of outflows.

New-issue market
In the primary market Thursday, BofA Securities priced for Colorado Springs, Colorado, (Aa2/AA+//) $392.73 million of utility improvement revenue bonds. The first tranche, $267.73 million of tax-exempt Series 2026A bonds, saw 5.25s of 11/2040 at 3.73%, 5.25s of 2041 at 3.84%, 5.25s of 2046 at 4.43%, 5.25s of 2051 at 4.68% and 5.5s of 2056 at 4.76%, callable 11/2036.

The second tranche, $125 million of taxable Series 2026B bonds, saw all bonds priced at par: 5.045s of 11/2032, 5.325s of 2036, 5.745s of 2042 and 5.895s of 2046, callable 11/2036.

In the competitive market, Wisconsin (/AAA/AAA/) sold $279.79 million of green environmental improvement fund revenue bonds, 2026 Series A, to BofA Securities, with 5s of 6/2028 at 2.62%, 5s of 2031 at 2.88% and 5s of 2035 at 3.20%, callable 3/2035.

CUSIP requests rise
In October, the aggregate total of identifier requests for new municipal securities — including municipal bonds, long-term and short-term notes, and commercial paper — rose 1.8% versus September.

On a year-over-year basis, overall municipal volumes were down 1.1% through the end of October.

Texas led state-level municipal request volume with 181 new CUSIP requests in October, followed by New York (123) and California (93).

For the specific category of municipal bonds, there was a drop of 0.6% month-over-month, and requests are down 3.4% year-over-year.