Market starts to stabilize heading into May
As April fades and May dawns, investors can be buoyed by stabilization in the crisis in the Middle East and prospects for May.
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Historically, May has not been a “bad month” for munis, said Barclays strategists.
Redemptions next month should be just slightly higher than those in April, they noted.
“However, investors typically start positioning for heavy summer redemptions in summer, so the market typically performs well enough through the first half of June and we do not believe that this year will be any different,” Barclays strategists said.
Currently, investors have a “sizable” amount of cash and rate volatility has begun declining with indications of stability in the Middle East, they said.
BofA strategists concurred: “The market is currently in a stabilization process, slowly pricing out the worst-case scenario (presumably $150-$200/bbl oil price) as ceasefire negotiations are on-and-off.”
However, the conflict may continue for weeks or even months while the market continues to progress, they said.
Due to geopolitics, institutional investors have been playing a little more “conservatively” than they typically would, said Greg Gizzi, head of fixed income and municipal bonds at Nomura Asset Management International.
“If you were to look through this and envision the potential — if there is some kind of agreement, ultimately, in the long run — this is disinflationary and it should be good for bonds,” he said.
“Supply should remain in focus, but it seems to be likely moving in line with last year’s numbers; supply is heavy, but not overwhelming, and we do not think it would match 2025’s numbers over the next four months,” Barclays strategists said.
Issuance for the week of April 27 is an estimated $7.193 billion, with $5.242 billion of negotiated deals on tap and $1.951 billion of competitives.
The Massachusetts Development Finance Authority leads the negotiated calendar with $1.404 billion of revenue bonds on behalf of the Dana-Farber Cancer Institute.
The competitive calendar is led by Delaware with $450.485 million of GOs in two series.
The big thing in the muni market has been the expanded new-issue calendar, said Tim Iltz, fixed income credit and market analyst at HJ Sims.
There’s a lot of inventory coming out of the market where accounts are moving from bonds that are maturing over the next couple of months and they’re taking on exposure to the deals on the calendar, he noted.
Some deals on the new-issue calendar will do better than others.
Deals that look attractive and offer value come from specialty states like California, New York or New Jersey, or deals lower in quality or spread that seem to be getting “gobbled up,” said Jeff Timlin, managing partner and head of municipal bond investing at Sage Advisory.
Comparatively, generic deals — national names or anything that’s low quality or low spread that doesn’t offer any particular diversification — may have a bit of a challenge on the margin, he noted.
