All Quiet With Market Expected to Snooze Until Yellen Speaks

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Top-rated municipal bonds finished steady to weaker in quiet activity on Thursday, traders said, as the primary market wound down in the last full trading session of the week. The U.S. bond markets will close early on Friday ahead of Memorial Day. Markets will remain closed on Monday before trading resumes on Tuesday.

"It is absolutely dead in the markets today," a New York trader said on Thursday. "The long weekend keeps many from taking positions, plus [Federal Reserve Chair Janet] Yellen is speaking [on Friday] and while not official FOMC business, she might give some clues as to Fed's disposition [on interest rates], so most market participants are waiting on that."

Yellen is speaking at Harvard University just before Friday's 2 p.m., EDT, close. While most Fed watchers don't expect her to talk about monetary policy in her speech, there is a question-and-answer period afterward in which she may give hints as to the Federal Open Market Committee's thinking on rates.

The FOMC next gathers on June 14-15, with a press conference and economic projections to follow the the meeting.

On Thursday, the yield on 10-year benchmark muni general obligation was steady from 1.66% on Wednesday, while the 30-year muni yield was steady from 2.45%, according to the final read of Municipal Market Data's triple-A scale.

The New York traded said the recent muni backoff from rich levels has buyers hoping there's more to come (which he said is unlikely in his opinion) and hampers two-way flows.

"When you throw in the month-end balance sheet constraints for many, you have a recipe for a very quiet market," he said.

U.S. Treasuries were stronger in Thursday trading. The yield on the two-year Treasury dropped to 0.87% from 0.91% on Wednesday, while the 10-year Treasury yield declined to 1.82% from 1.86% and the yield on the 30-year Treasury bond decreased to 2.63% from 2.67%.

Long-term muni yields have been on a bumpy 10-year downward trend overall. In May of 2006, the yield on the 30-year muni was calculated at 4.58%. On May 17, the 30-year muni yield stood at its all-time low of 2.39%, down from the previous lows set back in 2012.The 10-year muni to Treasury ratio was calculated at 91.2% on Thursday compared to 88.8% on Wednesday, while the 30-year muni to Treasury ratio stood at 93.2% versus 91.8%, according to MMD.

 

MSRB Previous Session's Activity

The Municipal Securities Rulemaking Board reported 40,604 trades on Wednesday on volume of $13.33 billion.

 

Primary Market

Bank of America Merrill Lynch priced the Los Angeles Department of Water and Power's $265.17 million of Series 2016B water system revenue bonds for institutions after holding a one-day retail order period.

The issue was priced on Thursday as 5s to yield from 1.09% in 2021 to 2.45% in 2038 and to yield 2.49% in 2042 and 2.53% in 2046. On Wednesday, the bonds were priced for retail as 5s to yield from 1.09% in 2021 to 2.45% in 2038; 2.51% in 2042 and 2.55% in 2046.

The deal is rated Aa2 by Moody's Investors Service, AA-plus by S&P Global Ratings and AA by Fitch Ratings.

RBC Capital Markets received the official award on the Massachusetts Educational Financing Authority's $340 million of Series 2016 Issue J education loan revenue bonds, subject to the alternative minimum tax.

The issue was priced to yield from 1.53% with a 4% coupon in 2018 to 2.75% with a 5% coupon in 2024; a 2033 term bond was priced as 3 1/2s to yield 3.625%.

The deal is rated AA by S&P and A by Fitch.

RBC also received the written award on the South San Francisco Unified School District, San Mateo County, Calif.'s $129 million of Series 2016C general obligation bonds, dedicated unlimited ad valorem property tax bonds.

The issue was priced to yield from 0.60% with a 2% coupon in 2017 to 2.49% with a 4% coupon in 2033; a 2037 term was priced as 4s to yield 2.70% and a 2041 term was priced as 3 1/4s to yield 3.15%.

The bond are rated Aa1 by Moody's and triple-A by Fitch.

JPMorgan Securities received the official award on the New Jersey Healthcare Facilities Finance Authority's $117.77 million of Series 2016A refunding bonds for the Inspira Health Obligated Group.

The issue was priced to yield from 0.83% with a 4% coupon in 2017 to 3.35% with a 3.25% coupon in 2036; a 2041 term was priced as 4s to yield 3.31% and a 2046 term was priced as 5s to yield 3%.

The deal is rated A2 by Moody's and A by Fitch.

 

Tax-Exempt Money Market Funds See Outflows

Tax-exempt money market funds experienced outflows of $987.8 million, bringing total net assets to $211.40 billion in the week ended May 23, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $2.55 billion to $212.39 billion in the previous week.

The average, seven-day simple yield for the 296 weekly reporting tax-exempt funds was unchanged at 0.06%.

The total net assets of the 893 weekly reporting taxable money funds increased $25.30 billion to $2.503 trillion in the week ended May 24, after an outflow of $16.29 billion to $2.477 trillion the week before.

The average, seven-day simple yield for the taxable money funds was 0.10%, down from 0.11% in the prior week.

Overall, the combined total net assets of the 1,189 weekly reporting money funds increased $24.31 billion to $2.714 trillion in the period ended May 24, which followed an outflow of $18.84 billion to $2.690 trillion.

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