Muni strength continues, USTs reverse course
Munis continued showing strength on Friday, as U.S. Treasuries cheapened and equities ended lower.
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Muni yields were bumped two to eight basis points, depending on the scale. UST yields rose by four basis points across the curve.
The flight to quality in USTs catalyzed the muni market’s rebound, wrote J.P. Morgan analysts led by Peter DeGroot. It drove a surge in exchange-traded fund inflows against the backdrop of tax-loss harvesting, “generational taxable-equivalent yields,” and a less intense net-supply backdrop.
“The rates market may be tested [the] week [of Oct. 26] as 38% of the S&P 500 report earnings, including Mag7, just as U.S. Treasury yields have become increasingly correlated with the performance of the NASDAQ over the past month,” DeGroot wrote. “Additionally, the rates market will digest important economic data.”
The tax-exempt calendar next week is light even for a week with a Federal Open Market Committee meeting, DeGroot wrote. J.P. Morgan analysts expect issuance to soften further over the next several weeks due to more limited refunding activity, the midterm elections and multiple upcoming holidays.
Primary to come
Issuance is an estimated $5.88 billion for the week of Oct. 26, with $3.954 billion of negotiated deals on tap and $1.926 billion of competitives, according to LSEG.
The California Health Facilities Financing Authority leads the negotiated calendar with $1.39 billion of Cedars-Sinai Health System revenue bonds.
The competitive calendar is led by the state of Washington with $327.38 million of various purpose general obligation bonds.
