Primary issuance is slated to increase over the course of the Holiday-shortened week, as buyers face fluctuating supply levels given the overarching volatility in the market. Issuers nationwide continue to face economic pressures as inflation levels surge to all-time highs and operating budgets evolve to match the pace of expanding costs.
Government-led monetary and fiscal policies have played a factor in turbulent market conditions, as participants gauge the outcome of sequential rate increases and additional quantitative tightening measures. Rising borrowing rates have presented challenges for issuers seeking to refinance outstanding debt, highlighted by the uptick of deals shifting to the sidelines amidst wide fluctuations in rates.
Delayed action on behalf of the Fed has drawn widespread anticipation of a recession, as slower economic activity coupled with surging costs for basic goods and services places the market on high alert. Investors are now directing attention towards risk-on/risk-off positions as a cyclical bear cycle may inflict great losses for underprepared participants.
US treasuries bull steepened over the course of last week’s session with the 5 year tenor contracting by 22 basis points to 3.34%, coupled with the 10YR & 30YR standing at 3.25% and 3.30% respectively. Muni benchmarks underperformed the trajectory of treasuries, after an even 7 basis point cut was noted across the curve, presenting a window of opportunity to take down paper at slightly higher returns.
Muni/UST ratios adjusted accordingly to last week’s variance in rate activity with the 10YR and 30YR ratios standing at 90% and 102%, with the 30YR ratio climbing above the 100% threshold witnessed in weeks prior. Fluctuations in rates have triggered persistent mutual fund outflows over the course year as retail and institutional investors acclimate to a rising rate environment and adjust muni bond holdings accordingly. Looking ahead, market players will be focused on identifying technical patterns to strategically deploy capital across safe haven investments, presenting munis as an ideal investment-vehicle during turbulent market conditions.