Prices of top-quality municipal bonds finished the week stronger, according to traders, as yields on longer-dated bonds fell by as much as three basis points on Friday. The market was busy digesting the week's chunk of new issues even as traders turned their eyes to the upcoming supply calendar.
Primary Market
The muni market absorbed about $6.992 billion of volume in a four-day, holiday-shortened week, with big issues from Texas and Washington State leading the way.
According to traders, the biggest takeaway was the large amount of supply that priced in only a few days.
"I think maybe it loosened up some secondary offerings and then some people also wanted book some profits for themselves, while others just wanted to get in on new issuance," said a New York trader. "Just a movement from a supply standpoint, I think a slightly softer Treasury market got things going in the muni market."
More than $4.5 billion came to market on Wednesday, as both of the big deals priced. The Texas deal, which was not supposed to price until Thursday, came to market a day early.
"It's a bird in hand situation," said a Midwest trader. "From a borrowers and underwriter perspective it makes sense that you want to get it in before the Municipal Market Data yields are cut. The yields are on their way back up this week and they wanted to take it to market before they got any higher."
Both deals were well received and, according to a Texas trader, everything was oversubscribed.
The muni bond market will see $6.138 billion of new issuance come to market in the upcoming week, according to Ipreo and The Bond Buyer. On the competitive side, there is a $1 billion general obligation bond offering from the commonwealth of Pennsylvania scheduled for bid on Tuesday. On the negotiated side, the largest deal is the $831.6 million offering from the Utah Transit Authority of sales tax revenue refunding bonds.
Secondary Market
Prices of top-rated munis were stronger on Friday. The yield on the 10-year benchmark general obligation was down two basis points to 1.81% from 1.83% on Thursday, while the yield on 30-year GOs dropped three basis points to 2.59% from 2.62% on Thursday, according to the final read of MMD's triple-A benchmark scale.
Treasury prices were higher on Friday, with the two-year note yield down to 0.50% from 0.52% on Thursday. The 10-year yield decreased to 1.83% from 1.89%, while the 30-year yield fell to 2.40% from 2.47%.
On Friday, the 10-year muni to Treasury ratio increased to 98.0% from 96.9% on Thursday, while the 30-year muni to Treasury ratio rose to 107.6% from 106.5%.
MSRB Reports Previous Session's Activity
The Municipal Securities Rulemaking Board reported 39,859 trades on Thursday on volume of $13.056 billion. Most active on Thursday, based on the number of trades, was the Texas Transportation Commission Central Texas Turnpike System's second tier revenue refunding bond 5s of 2042, Series 2015-C, which traded 115 times with an average price of 111.976 and an average yield of 3.51%.
Tax-Exempt Bond Funds See Inflows
Municipal bond funds which report weekly posted $771.234 million of inflows in the week ended Jan. 21, after inflows of $688.522 million in the previous week, according to the latest Lipper data.
The four-week moving average remained positive at $696.988 million in the latest week after adding $669.041 million in the previous week. A moving average is an analytical tool used to smooth out price moves by filtering out fluctuations.
Long-term muni bond funds had inflows of $496.724 million in the latest week, after inflows of $588.754 million in the previous week.
High-yield muni funds recorded inflows of $272.931 million in the latest reporting week, after inflows of $259.074 million in the previous week.
Exchange-traded funds had inflows of $588.671 million, after reporting inflows of $128.344 million in the previous week.
