Munis weaker ahead of smaller holiday week new-issue calendar
By Jessica Lerner Christine Albano – February 17, 2023

Quoted: Shaun Burgess, Portfolio Manager & Fixed Income Analyst for Cumberland Advisors




In muniland, the Barclays strategists said, things unraveled rather fast this week.

"Although initially tax-exempts outperformed in the rate selloff, their yields finally started adjusting mid-week, increasing 30-40bp," they said.

The yield curve "has continued to invert, and not only in the front end, but also in the belly of the curve," they said.

The 3s5s slope has now "moved deeper into negative territory while the 5s10s portion has become extremely flat," according to Barclays strategists.

Meanwhile, "the front end (1-2y munis) has experienced additional pressure from the surging SIFMA rates," they said.

While munis have cheapened meaningfully this week, "they are still rather rich versus Treasuries," they said.

The Barclays strategists noted, "it helps that issuance during the short week will be light, but supply is likely to be heavier in March and, coupled with poor seasonals, might cause another leg down for the market."

They "don't view this as a repeat of Q1 2022, but still see better opportunities ahead for investors."

The recent supply increase in new issuance coupled with some market weakness has contributed to yields moving slightly higher on the week, with the short end seeing the most pressure following Tuesday's consumer price index data, according to Shaun Burgess, portfolio manager and fixed income analyst at Cumberland Advisors.

"The municipal market feels somewhat softer as scales continue to see cuts," Burgess said Thursday. "The economic data we have seen this week points to an economy which remains robust and Fed policy which will clearly remain hawkish as they try to bring inflation to their 2% target," he continued.

Burgess said deals are getting done when attractively priced, but he noticed balances on new issue transactions.

Overall, February has seen the municipal market selling off mainly due to fears of inflation and a more hawkish Federal Reserve Board, compared with January's lower supply, lower yields and lower expectations for the fed funds rate for 2023, noted Steve Majoris, vice president, and portfolio manager at Advisors Asset Management.

The broad municipal market was up 1.23% year-to-date, but down 1.59% month-to-date.

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Shaun Burgess
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The Bond Buyer