Munis a Bit Firmer as Issuance Declines This Week

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Munis were a touch firmer in spots as short-term U.S. Treasuries cheapened and equities ended slightly higher. This week will be short but busy, as investors received $12 billion of maturing and called bond principal as of Feb. 15. The smaller new-issue calendar due to the holiday-shortened week should be able to "soak up" some of the reinvestment demand, but the pace of issuance is expected to pick up following this week.

Why it matters

The technical backdrop will likely shift as the market heads into tax season in March and April, as accounts often tap their muni portfolios to fund tax payments, while reinvestment cash in the spring can be some of the lowest of the year. If 2026 is the third straight year of record issuance, there may be "some better entry points as the market struggles to maintain the current level of stretched valuations when supply picks up amidst a less favorable demand environment."

The details

Muni yields fell last week, with the short end of the curve seeing the largest bumps of 7.7 basis points, while the 2028-2043 maturity range saw yields fall five to six basis points. The 2044-2047 maturities saw bumps of two to four basis points, and the 2048-2056 maturity range saw a two-basis-point bump. With falling yields, munis continued their rally with the month seeing gains of 0.69%, pushing year-to-date returns to 1.63%. In the primary, the heavy new-issue calendar was well received, with "most negotiated deals being oversubscribed, bumped, and trading up a few bps on the break," while competitive deals were "bid very strongly and most had good follow through."

• As of February 15, investors received $12 billion of maturing and called bond principal.
• This week will be short but busy due to the holiday-shortened week.

What they’re saying

What’s next

Following this week, the pace of issuance should pick up, Birch Creek strategists said. Large deals on the calendar over the next few weeks include the University of California with $2 billion of general revenue bonds, the Triborough Bridge and Tunnel Authority with $817 million of payroll mobility tax refunding bonds, and the Dormitory Authority of the State of New York with $2 billion of personal income tax revenue bonds.