Munis see lighter new-issue calendar, more volatility next week

Following a volatile week, the muni market enters the final week of May with a lighter new-issue calendar and June 1 reinvestment right around the corner amid geopolitical uncertainty and ongoing inflation concerns.

It will be more of the same. "We're going to have some weak days, we're going to have some stronger days, maybe they wash out against each other," said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.

Until there's a firm resolution with Iran "I don't think there's any clarity on the direction," she added.

If an agreement is reached, the muni market will most likely rally hard as the selloff has been a little "overdone," Olsan said.

Currently, the muni market doesn't seem "unduly vulnerable" to a correction or a rally. It seems to be fairly well priced, although muni yields could inch higher if Treasuries continue to see losses, said Matt Fabian, president of Municipal Market Analytics.

"With all these geopolitical things going on and Iran, oil prices up, it's all going to focus on what Treasuries do, [which] have backed up quite a bit this month," he said.

MMD yields risen up to nine basis points in the week, as the asset class saw large losses on both Friday and Tuesday.

If the extreme volatility seen in muni yields over the last week didn't send buyers to the sidelines ? it probably sent some ? recent mutual and exchange-traded fund flows suggest there's sufficient demand for the higher yields, said Pat Luby, head of municipal strategy at CreditSights.

"I wouldn't say [the market is on] solid footing, because we've obviously got economic numbers that are causing concern, but geopolitically we're in a state of flux, so I think the higher yields offset the greater uncertainty, and there's money going to get put to work," he said.

Next will be an opportunity for the market to take a deep breath to figure out what the summer will look like, said Tom Kozlik, managing director and head of public policy and municipal strategy at HilltopSecurities.

For instance, the June 1 and June 15 payments will be a little supportive for the market, Olsan said.

Supply will be on the lighter side in the holiday-shortened week, and buyers will be more selective, said Jason Wong, vice president of municipals at AmeriVet Securities.

Supply falls to an estimated $6.156 billion, with $4.251 billion of negotiated deals on tap and $1.905 billion of competitives, according to LSEG.

The New York City Transitional Finance Authority leads the negotiated calendar with $2.147 billion of future tax secured subordinate bonds

The competitive calendar is led by Mesa, Arizona, with $321.835 million of utility systems revenue obligations in two series, followed by Prince George's County, Maryland, with $318.42 million of general obligation consolidated public improvement bonds in two series.

However, supply could be higher than expected, as absent more volatility from the taxable side, the muni market is fairly well positioned to handle a bigger calendar, Fabian said.

"So it wouldn't be a surprise if the calendar goes up, deals get accelerated or brought out of day-to-day status," he noted.