Market Close: Munis Extend Losses With Negative Returns In August

Municipal bonds extended losses Friday to close out August with negative returns going into a three-day holiday weekend.

While volume was light Friday as traders left their desk early for Labor Day, activity was anything but that for the month.

From July 31, the 10-year Municipal Market Data yield rose 27 basis points and the 30-year yield increased 25 basis. The two-year was flat at 0.43% for the month.

The 10-year Municipal Market Advisors triple-A yield rose 21 basis points for the month and the 30-year yield increased 26 basis points. The two-year yield rose one basis point to 0.55%.

The rise in yields was fueled in part by retail withdrawing funds from municipal bond mutual funds. In the week ending Aug. 7, investors withdrew $973.8 million, followed by $1.21 billion in redemption for the week ending Aug. 14. The following week, investors pulled $2.14 billion in funds and $1.74 billion the week ending Aug. 28.

Outflows and rising yields triggered negative performance in bond prices. The S&P National AMT-Free Municipal Bond Index was down 1.68% for August and 5.55% year to date. The jump in rates has now pushed municipal bond yields to levels that are extremely attractive on a relative basis, said J.R. Rieger, vice president of fixed income at Standard & Poor’s Down Jones Indices.

Investment grade munis in the index yield 3.34% tax-free. Investment grade corporate bonds tracked in the S&P U.S. Issued investment Grade Corporate Bond Index yield a taxable 3.21%.

High-yield bonds tracked by the S&P Municipal Bond High Yield Index yield 6.97%. Corporate bonds tracked by the S&P U.S. Issued High Yield Bond Index yield 6.00%.

In the last trading session of August, muni bonds continued to trade lower in price, according to trades compiled by data provider Markit. Yields on TSASC Inc. 5125s of 2042 increased four basis points to 8.11%.

Yields on Allegheny County, Pa., Hospital Development Authority 6s of 2025 rose three basis points to 4.28% and Puerto Rico Commonwealth 5.5s of 2039 rose one basis point to 8.12%.

Friday, yields on the triple-A Municipal Market Data scale ended mostly flat. The 10-year was steady at 2.94% for the third session and the 30-year was also unchanged for the third session at 4.45%. The two-year finished flat at 0.43% for the 33rd straight session.

Yields on the Municipal Market Advisors scale ended mostly flat across the curve Friday. The 10-year yield rose one basis point to 3.09% and the 30-year closed steady at 4.54% for the third session. The two-year closed unchanged at 0.55% for the 11th session.

Treasuries ended steady to slightly firmer Friday. The two-year yield fell one basis point to 0.39% and the 30-year yield slid two basis points to 3.68%. The benchmark 10-year was steady at 2.75%.

Looking to next week, the municipal bond market can expect $1.59 billion in new deals, down from the past week’s revised $3.90 billion. In negotiated deals, $1.30 billion is expected, down from the previous week’s $2.34 billion. On the competitive calendar, $290.5 million is expected, down from the past week’s $1.56 billion.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER