Is record supply causing investor fatigue? Not yet, bond buyers say

Underwriters worried about "investor fatigue" are bringing deals earlier in the week and making other changes to ensure their bond issues get the attention of portfolio managers who are parsing heavy weekly calendars.

During the recent years of record supply in the municipal bond market, demand has easily absorbed the paper ? and investors say they expect that dynamic to continue. But with weeks like this, which saw $16.3 billion hit the primary, underwriters and investors are under the gun to sell, analyze and purchase the deal flow.

"We have at least one calendar meeting a day and sometimes more than one; it's about staying on top of this flow," said Jamie Iselin, head of municipal fixed income at Neuberger Berman. "It requires harder work and a lot more communication" internally and with the dealers, he said, adding that some deals can get overlooked. "When you saw that explosion of supply in 2024 ? the sheer volume of line items that can come ? sometimes the $50 to $75 million deals get lost in the shuffle, and that can create a real investment opportunity."

For around 15 years, the muni market hovered around $4 trillion. It has expanded significantly over the last few years, hitting $4.4 trillion in 2025, up 4.5% from 2024, according to the latest Federal Reserve Data.

Supply year-to-date is at $150.4 billion, up 4.1% year-over-year, according to LSEG.

A majority of shops predicted 2026 would be another year of record issuance, totaling at least $600 billion, although issuance started slower than expected before ramping up in March.

Looking ahead, many market participants say they expect the market to continue to grow as cities and states confront major infrastructure and deferred maintenance needs, including those driven by climate change, in an environment of climbing project costs.

The surge of supply has prompted some dealers to break from the tradition of pricing deals later in the week and start to pull transactions forward.

"It's much more normal to price a deal on a Monday, which a couple of years ago was very abnormal," Alice Livingston, head underwriter at Stern Brothers & Co, said March 30 at The Bond Buyer's Texas Public Finance conference.

Deals are coming "more now on Monday and Tuesday to get ahead of supply ? not waiting until Wednesday or Thursday because investors may have filled up already by later in the week," Livingston said. "You do start to see investor fatigue pick up as the week progresses."

Monday pricings are typically reserved for high-grade deals that the market is familiar with, said Merita Kulpinski, director and head underwriter at Cabrera Capital Markets LLC, at the conference.

"Mondays are typically, for investors, their credit day, so they can decide what they want, so the only deals that can get done are the ones that everyone already knows they will participate in," like Texas Permanent School Fund Corp. bonds, Kulpinski said.

Last week, a majority of the deals came to market Monday through Wednesday, potentially because issuers wanted to "front-run" the inflation figure and ongoing geopolitical tensions, according to Sweta Singh, founding partner and portfolio manager at City Different Investments.

Singh said she participated in four deals during the first three days of last week, and following those deals, said she hadn't looked at the new-issue calendar on Thursday. "I haven't looked at the [new-issue] market because I've participated in four new deals, and that's behind me. I assume that's pretty much what the buyside has done this week," Singh said last Thursday.

Participation in deals later in the week may depend on the available cash, investors said.

"If there's a lot of issuance on Tuesday and Wednesday, and we did very well on our allotments, and we're very well invested, then, we might sit on our hands on Thursday and say, 'We can just ignore whatever deals are coming'," said Jim Quealy, head of municipal trading at Appleton Partners, Inc.

However, Appleton doesn't usually have the "luxury" of ignoring any of the issues, he said.

"You just take what you can get and move on to the next one. And if that happens to be on a Thursday, then we're going to be involved."

Several deals in specific states or sectors hitting the market the same week can also dampen interest later in the week. Appleton said it participated in four to five California deals through Wednesday of this week, but chose not to participate in a deal from the state on Thursday, Quealy said.

Multiple weeks of heavy supply can contribute to investor fatigue, said Adam Congdon, director at Payden & Rygel.

Larger deals may be more "immune" as investors look at them for scale and concessions, Congdon said.

"If you're an investor and if volatility isn't super high, you probably feel like you can wait and target those larger, bellwether deals within a given week," he said.

However, with smaller deals, there is a preference and benefit to coming earlier, because there will be investors who don't wait or want to get money and invest it, he said.

Issuers are starting to promote their deals earlier, said Colin MacNaught, CEO and co-founder of BondLink, speaking at the Texas conference. "Our clients are trying to alert the market earlier," MacNaught said. "Let the credit analysts fall in love with your story," and "let the portfolio managers know so they can manage their cash," he said.

"Let investors know that you're open to ideas on structures," he added. "The market is changing dramatically, of course, you have to change how you come to market and with what structures."

To attract retail buyers, bankers are offering more tranches in the early to mid-part of the yield curve to ensure demand from the ever-growing base of separately managed accounts and exchange-traded fund buyers. Offering more bonds in the six- to 15-year part of the curve, coupled with early preliminary statements and roadshows, can hook the SMAs and ETFs, Kulpinski said.

"Once you get them in, you have them, and they're going to follow that credit forever, and that's really important to the secondary market spreads," she said.

"You've got to credit" the underwriters and issuers, Iselin said. "They're trying to be tactical and strategic about when they come to market. If they see a seam or a pocket of opportunity, they're going to slot in there," he said.

Regardless of the timing and structure tweaks, muni bond demand remains a "three-legged stool," said Cooper Howard, director of fixed income research and strategy for the Schwab Center for Financial Research.

One leg is credit, the second is total returns and the third leg is absolute yields, he said.

"There might be some things you could do to nibble around the edges because of the record issuance we're seeing in the market right now," Cooper said. "But ultimately, if those three legs in the stool hold up, demand will continue."