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Munichain Market Perspective #10

By Matthew Gerstenfeld
Market Perspective

Primary supply will remain quiet following the July 4th Holiday weekend, with several negotiated transactions driving the majority of this week’s calendar. Institutional and retail investors have faced greater fluctuations in weekly volume figures given the sharp movements in rates coupled with evolving economic data.

Participants are carefully monitoring seasonal market technicals as issuer pricing apprehension over the first half of the year has translated into weak supply relative to 2021. Elevated costs for goods and services has placed additional strain on municipalities seeking to balance budgets in the years to come.

Further action on behalf of the FOMC remains in question as participants gauge the effectiveness of quantitative tightening and upcoming inflation data. Economic success and curbed inflation remains a focal point among borrowers and investors searching to minimize risk during turbulent market conditions.

US treasuries bull steepened over the course of last week’s session with the 5 year tenor tightening by 36 basis points to 2.88%, offering the same yield noted in the 10YR coupled with the 30YR which fell 20bps to 3.11%. Muni benchmarks significantly underperformed the trajectory of Treasuries, bull flattening by 6-15 basis points despite the boost in new issue offerings.

Muni/UST ratios reacted to last week’s divergence in rate activity with the 10YR and 30YR ratio hovering at 92% and 100% respectively, outlining limited ratio adjustments in the long bond. Sharp rate reversals on a weekly basis has curbed the appetite of investors, outlined by mutual fund outflows and buy side reluctance to take down new issue paper.

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