Sales of new US state and local-government bonds are poised to dwindle for the next few weeks, delivering a potential respite for a market that’s on track for its biggest monthly slump since February.
(Bloomberg) — Sales of new US state and local-government bonds are poised to dwindle for the next few weeks, delivering a potential respite for a market that’s on track for its biggest monthly slump since February.
The issuance calendar for the next 30 days, encompassing the abbreviated trading week after the Sept. 4 US Labor Day holiday, currently shows about $5.9 billion of municipal-bond sales, according to data compiled by Bloomberg. That’s not far off the slowest pace since February and well below the five-year average of so-called visible supply, which stands at about $11 billion.
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The slowdown, starting this week with sales slated to total about $3.5 billion, may relieve some pressure on munis, which are posting losses this month along with other fixed-income securities as investors absorb the Federal Reserve’s signals that it will keep interest rates higher for longer to tame inflation.
“The slowdown of primary issuance would give the market a healthy post-Labor Day appetite,” said Alice Cheng, a strategist at Janney Montgomery Scott. She said that amid the volatility of recent weeks, there has been investor interest in both primary and secondary offerings, especially in longer maturities.
Ten-year benchmark municipal debt yields around 2.9%, the highest since November and almost 40 basis points above the end of July, data compiled by Bloomberg show. The muni market is down about 1.8% in August, while US Treasuries have lost 1.3%, according to Bloomberg index data.
Long-term municipal issuance has already dropped 10% in 2023 as higher rates stymie borrowing and limit governments’ ability to refinance, according to data compiled by Bloomberg.
The August slide in munis would have been larger if not for the shrinking sales calendar, according to Jeffrey Lipton, head of municipal research at Oppenheimer & Co.
“If it were not for the benefits of traditional summer technicals, we suspect munis would be showing even weaker performance,” he wrote in a research note.
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