Prices of top-quality municipal bonds were stronger with Treasuries at mid-session, traders said, after the GDP report showed the U.S. economy grew more slowly than had been expected.
Gross domestic product expanded at a 2.6% annual pace in the fourth quarter of 2014, down from 5% in the third quarter. Economists had predicted GDP to come in at a 3% rate for the last quarter of the year.
The yield on the 10-year benchmark general obligation was down one to three basis points from 1.75% on Thursday, while the yield on 30-year GOs was off two to four basis points from 2.54%, according to a read of MMD's triple-A benchmark scale.
Treasury prices were also higher at midday. The two-year note yield decreased to 0.47% from 0.52% on Thursday; the 10-year yield dropped to 1.67% from 1.77%, while the 30-year yield declined to 2.25% from 2.33%.
Tax-Exempt Bond Funds See Continued Inflows
Municipal bond funds which report weekly posted $892.528 million of inflows in the week ended Jan. 28, after seeing inflows of $771.234 million in the previous week, according to the latest Lipper data. The four-week moving average remained positive at $922.473 million in the latest week after remaining in the green at $696.988 million in the prior week. A moving average is an analytical tool used to smooth out price moves by filtering out fluctuations.
"This month's extraordinary positive flows into the muni market were fueled by strong seasonal reinvestment demand and lower interest rates," says Daniel Berger, MMD Senior Market Strategist. "Although absolute rates are painfully low, retail investors probably looked at their muni holdings and viewed these investments as a safe haven."
Muni bond funds experienced inflows in each week of January, according to Lipper. Inflows totaled $688.522 million in the week ended Jan. 14. In the week ended Jan. 7, funds saw $1.338 billion of inflows, a two-year high.
Long-term muni bond funds had inflows of $549.093 million in the latest week, after inflows of $496.724 million in the previous week.
High-yield muni funds recorded inflows of $207.914 million in the latest reporting week, after inflows of $272.931 million in the previous week.
Exchange-traded funds had inflows of $91.239 million, after reporting inflows of $58.671 million in the previous week.
Primary Market
Volume for next week is estimated at $8.834 billion, up from a revised total of $4.108 billion this week. About $6.079 billion negotiated deals are scheduled for next week while bonds scheduled for competitive sale next week total around $2.756 billion.
The municipal bond market is already looking ahead to the upcoming week -- when the state of Pennsylvania will return to head the new issue calendar as it sells the $1 billion general obligation bond offering in a competitive sale on Tuesday which was snowed under this week. The bonds are rated Aa3 by Moody's Investors Service and AA-minus by both Standard & Poor's and Fitch Ratings.
Also on the competitive slate is the Virginia Public School Authority's $459 million school financing refunding bonds. The issue, set for sale on Tuesday, is rated Aa1 by Moody's and AA-plus by S&P and Fitch.
MSRB Reports Previous Session's Activity
The Municipal Securities Rulemaking Board reported 36,457 trades on Thursday on volume of $11.245 billion.
Most active on Thursday, based on the number of trades, was the Elk River Independent School District No. 728, Minn., Series 2015 A, school building bon 3s of 2033, which traded 70 times with an average price of 98.459 and an average yield of 3.112%.
Muni Money Market Fund Outflows Rise to $1.53B
Tax-exempt money market fund assets dropped to $260.86 billion after $1.53 billion fled the funds in the week ended Jan. 26, according to The Money Fund Report, a service of iMoneyNet.com. The assets fell from $262.39 billion in the prior week.
The average, seven-day yield for the 396 weekly reporting tax-exempt money funds held steady at 0.01%.
The total net assets of the 994 weekly reporting taxable money funds fell $6.99 billion to $2.457 trillion in the week ended Jan. 27, down from $2.464 trillion in the prior week.
The average seven-day yield for the taxable funds was unchanged at 0.02% for the second consecutive week — after spending 87 weeks at 0.01%.
Overall the combined total net assets of the 1,390 weekly reporting money funds declined by $8.52 billion after losses of $2.718 billion in the week ended Jan. 27. That was down slightly from last week's total net assets of $2.727 trillion.
Christine Albano contributed to this report.
