The muni market is bracing for another week of healthy supply as investors await dual May inflationary reports.

Issuers have come to market at a rapid pace this year, with supply at just over $250 billion year-to-date, up 4.1% year-over-year, according to LSEG.

Part of the reason for the surge in supply is that issuers want to come to market before the June 30 fiscal year-end, and high absolute rates are creating their own demand, said James Pruskowski, managing director at Hennion & Walsh.

"Demand is pulling more supply forward; issuers never waste an open window," he said.

While supply falls this week, it is still robust. Issuance is an estimated $11.541 billion this week, with $8.501 billion of negotiated deals on tap and $3.04 billion of competitives, according to LSEG.

However, supply could rise if a prepay deal sneaks onto the calendar and deals are upsized, said J.P. Morgan strategists.

Massachusetts leads the negotiated calendar with $983.79 million of general obligation bonds across two tranches.

The competitive calendar is led by Orange County, Florida, with $583.68 million of tourist development tax revenue bonds sold in two series.

This week sees the release of May's Consumer Price Index and Producer Price Index.

Due to ongoing geopolitical tensions and volatility in financial markets amid ongoing negotiations and occasional military strikes, bond investors are waiting to see what the May economic data shows, said BofA strategists.

"Whether it is reflationary/inflationary or somehow cooler-than-expected will be examined in a sequence of important data points," including Friday's jobs data and this week's inflation reports, they said.

"We believe a range bound macro rates and richening muni relative value environment is most likely to prevail during the summer," BofA strategists said.

Therefore, this and last week's key data points may not give a "definitive direction," leaving investors wondering over the summer, they said.

There could also be additional "swings" in what the Federal Reserve will do next, as the market has gone from pricing in a rate cut to a rate hike, BofA strategists said.

With demand for munis generally strong and USTs "increasingly volatile," munis are again becoming expensive in the shorter end of the yield curve, said Daryl Clements, a municipal portfolio manager at AllianceBernstein ( AB ).

"The two-year after-tax spread is negative, which means investors can earn 9 bps more on a UST versus a comparable muni, while even the five-year spread is far below average," he said.

These spreads show that owning short-term USTs will either provide more income in the short term and likely better returns over time as munis return to fair value, Clements said.