The municipal bond market is bracing for a significant year, with First Eagle Investment Management’s head of high-yield municipal funds predicting that long-term municipal sales could soar to $550 billion in 2024, potentially breaking previous records. This optimistic outlook follows a recent pause in numerous municipal deals, triggered by market volatility stemming from tariffs. As the financial landscape shifts, investors and issuers alike are keenly watching how these changes will affect upcoming transactions.

Market Turbulence and Its Effects

In a striking turn of events, issuers placed a hold on several deals earlier this week amid a market downturn that significantly impacted municipal bonds. The benchmark yields for 10-year securities skyrocketed by approximately 85 basis points in just three days, marking the highest spike in over a decade. Such rapid fluctuations are uncommon in the municipal bond sector, which typically enjoys more stability compared to other investment classes.

• Quick Facts:
  • 10-Year Securities Yield Increase: 85 basis points
  • Historical Context: Highest spike in over a decade
  • Number of Deals on Hold: Dozens

A Temporary Setback

In a recent interview, Miller acknowledged that the market might require a short breather to regain its footing. “We might take a breather for a little while until things sort of settle down,” he noted. Despite the current disruptions, Miller remains confident that 2024 will still be a strong year for issuers looking to enter the market.

Future Outlook for Municipal Bonds

While Miller anticipates that transactions will eventually proceed, he cautions that they may not return to the record-breaking pace witnessed in the first quarter of 2024. Miller, who joined First Eagle in January 2024 after a successful three-decade tenure at Nuveen, had initially forecasted a robust year, predicting new issues to surpass $440 billion—a figure that aligns with his earlier estimates.

High-Yield Segment Challenges

However, the high-yield arena, where Miller has established his reputation, may not experience the same surge. He expressed concerns that some delays in this sector could lead to outright cancellations. “Without more large deals, new debt in this segment is unlikely to outpace last year’s volume,” he explained.

• High Yield Insights:
  • 2023 High Yield Volume: Approximately $35 billion
  • 2025 Sales So Far: About $9 billion
  • Growth Expectation for 2025: Same or low-single-digit percentage increase

Miller’s forecast for the high-yield sector reflects a cautious approach, suggesting that significant growth may be elusive this year. “Over, under, it could be very close to that,” he remarked. “I don’t think high yield is necessarily going to have as big an increase.”

As the municipal bond market navigates these turbulent waters, the coming months will be crucial for both investors and issuers as they adapt to the evolving landscape. With a mix of optimism and caution, stakeholders are poised to respond to the challenges ahead while keeping an eye on potential opportunities.