The municipal market strengthened throughout the session Wednesday as Federal Reserve Board ChairJerome Powell said smaller interest rate increases are likely ahead — and could start as early as next month. U.S. Treasuries and equities rallied following Powell’s comments.

Triple-A yields fell by two to four basis points with the best performance on bonds 10 years and in while UST saw yields fall up to 12 on the short end.

The three-year muni-UST ratio Wednesday was at 62%, the five-year at 69%, the 10-year at 73% and the 30-year at 92%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the three at 61%, the five at 65%, the 10 at 73% and the 30 at 93% at a 4 p.m. read.

“The municipal market has performed very well — even though Treasuries have rallied, we have rallied more,” John Farawell, managing director at Roosevelt & Cross, said on Wednesday afternoon.

He said there was an “assets on” approach in the financial markets, noting “stocks and bonds are up and there is more to come.”

He pointed to Powell’s Wednesday speech — as well as the upcoming release of key financial data — for further clues on the market climate.

During his speech, Powell also cautioned that monetary policy will likely stay restrictive for some time until real signs of progress emerge on inflation.

His remarks will likely reinforce expectations that the Fed will raise rates by 50 basis points during its mid-December meeting after four straight 75 basis point rate hikes.

“The time for moderating the pace of rate increases may come as soon as the December meeting,” Powell said in the text of his speech. “Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.”

But the market took the speech in stride and the short end of the municipal yield curve strengthened, Farawell noted.

“There is a lot of cash out there and nominal yields are still attractive,” he said.

Farawell expected the municipal market to stay strong amid the current rally and based on recent demand.

“There was huge interest when we were giving them 4% [yields] in 13 and 14 years, and even though now the percentages are not as attractive as they were, there is money out there, and a lot of money maturing” before year-end, Farawell said.

Outflows continue with the Investment Company Institute reporting that investors pulled $1.733 billion from mutual funds in the week ending Nov. 22 after $1.084 billion of outflows the previous week.

Exchange-traded funds saw another week of inflows at $877 million after $2.430 billion of inflows the week prior, per ICI data.

In the primary market Wednesday, Citigroup Global Markets priced for institutions $912.365 million of GOs for Connecticut with yields lowered by up to 11 basis points from Tuesday’s retail offering. The first tranche, $400 million of GOs, 2022 Series E, saw 5s of 11/2023 at 2.54% (-9), 5s of 2027 at 2.78% (-11), 5s of 2032 at 2.99% (-2) and 5s of 2035 at 3.33%, callable 11/15/2032.

The second tranche, $250 million of social GOs, 2022 Series F, saw 5s of 11/2035 at 3.33%, 5s of 2037 at 3.54% (-11) and 5s of 2042 at 3.74% (-9), callable 11/15/2032.

The third tranche, $262.365 million of general obligation refunding bonds, 2022 Series G, saw 5s of 11/2023 at 2.54% (-9), 5s of 2027 at 2.78% (-11) and 5s of 2032 at 2.99% (-2), noncall.

BofA Securities priced for the Chandler Industrial Development Authority, Arizona, (A1/A+//) $444.960 million of Intel Corporation Project industrial development revenue bonds, Series 2022-2 (Second Subseries), with 5s of 9/2052 and a mandatory tender date of 9/2027 at 4.10%, callable 3/1/2027.

BofA Securities priced for the Indianapolis Local Public Improvement Bond Bank (A1//A/) $174.775 million of Indianapolis Airport Authority Project bonds. The first tranche, $78.520 million of non-AMT bonds, Series 2022G-1, saw 5s of 1/2028 at 2.86%, 5s of 2032 at 3.08%, 5s of 2037 at 3.75%, 5s of 2042 at 4.01%, 5.25s of 2048 at 4.16% and 5s of 2053 at 4.29%, callable 1/1/2032.

The second tranche, $70.905 million of AMT bonds, Series 2022G-2, saw 5s of 1/2025 at 3.33%, 5s 2027 at 3.52%, 5s of 2032 at 3.76%, 5.25s of 2037 at 4.25%, 5.25s of 2042 at 4.51%, 5.25s of 2048 at 4.75% and 5s of 2053 at 4.82%, callable 1/1/2032.

The third tranche, $25.350 million of taxables, Series 2022G-3, saw all bonds price at par: 4.9s of 1/2025, 4.97s of 2027 and 5.18s of 2032, callable 1/1/2032.

Oppenheimer & Co. priced for the Downers Grove Grade School District No 58, Illinois, (/AA//) $125 million of general obligation school bonds, Series 2022, with 5s of 12/2023 at 2.60%, 5s of 2027 at 2.80%, 5s of 2032 at 2.98%, 5s of 2037 at 3.60% and 5.25s of 2041 at 3.78%, callable 12/15/2032.

In the competitive market, Alexandria, Virginia, (/AAA//) sold $144.175 million of unlimited tax general obligation bonds to Citigroup Global Markets, with 5s of 12/2023 at 2.46%, 5s of 2027 at 2.61%, 5s of 2032 at 2.69%, 5s of 2037 at 3.15%, 4s of 2042 at 3.76%, 5s of 2047 at 3.95% and 4s of 2052 at 4.03%, callable 12/15/2032.

Few deals are left to price this week as the calendar turns to December. November issuance came in almost 47% lower than November 2021 and below $20 billion for the first time since 1999.

AAA scales
Refinitiv MMD’s scale was bumped up to three basis points: the one-year at 2.49% (-2) and 2.53% (-2) in two years. The five-year at 2.63% (-3), the 10-year at 2.71% (-3) and the 30-year at 3.52% (unch).

The ICE AAA yield curve was bumped two to four basis points: 2.51% (-2) in 2023 and 2.55% (-2) in 2024. The five-year at 2.61% (-3), the 10-year was at 2.74% (-4) and the 30-year yield was at 3.58% (-1) at a 4 p.m.

The IHS Markit municipal curve was bumped three basis points: 2.49% (-2) in 2023 and 2.55% (-2) in 2024. The five-year was at 2.62% (-2), the 10-year was at 2.71% (-4) and the 30-year yield was at 3.52% (unch) at a 4 p.m. read.

Bloomberg BVAL was bumped two to three basis points: 2.54% (-3) in 2023 and 2.57% (-3) in 2024. The five-year at 2.62% (-3), the 10-year at 2.73% (-2) and the 30-year at 3.51% (unch) at 4 p.m.

Treasuries rallied on the short end.

The two-year UST was yielding 4.364% (-12), the three-year was at 4.118% (-12), the five-year at 3.808% (-12), the seven-year 3.748% (-10), the 10-year yielding 3.663% (-9), the 20-year at 3.978% (-4) and the 30-year Treasury was yielding 3.780% (-2) just before the close.

Primary to come:
The San Jose Financing Authority (/AAA/AAA/AAA) is set to price on Thursday $275.575 million of wastewater revenue green bonds Climate Bond Certified, serials 2023-2042; terms 2047, 2052. Wells Fargo Bank.

The Texas Department of Housing and Community Affairs (Aaa/AA+//) is set to price on Thursday $190 million of single-family mortgage revenue bonds (non-AMT), serials 2024-2034; terms 2037, 2042, 2047, 2052, 2053 (PAC bonds). Barclays Capital.

Competitive: 
Westchester County, New York, is set to sell $142.375 million of tax-exempt GOs at 11 a.m. Thursday. The issuer will also sell $71.662 million of taxable general obligations bonds at 11:30 a.m. Thursday.