Prices of top-rated municipal bonds were nearly unchanged at mid-session, traders said, as yields on some maturities were unchanged to as much as one basis point stronger.
The municipal bond market began slipping into holiday mode early as there were no major bond deals of note scheduled on the calendar for Thursday or Friday.
Secondary Market
The yield on the 10-year benchmark muni general obligation on Thursday was steady from 2.19% on Wednesday, while the yield on the 30-year GO was as much as one basis point stronger from 3.12%, according to a read of Municipal Market Data's triple-A scale.
Treasury prices were mostly higher on Thursday, with the yield on the two-year Treasury note dropping to 0.70% from 0.71% on Wednesday, while the 10-year yield fell to 2.17% from 2.19% and the 30-year yield was flat at 2.96%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 100.0% versus 101.0% on Tuesday, while the 30-year muni to Treasury ratio stood at 105.4% compared to 106.5%, according to MMD.
Barclays: Higher Likelihood of No Fed Rate Hike in 2015
The market now sees a higher probability of a later rate hike by the Federal Reserve, according to the most recent municipal strategy monthly report from Barclays Capital.
"Barclays' economics team forecasts the first rate hike to be in March 2016 versus September 2015 previously," said the report, which was put together by Mikhail Foux, Sarah Xue and Mayur Pat. "A potentially lower rate environment over the near term could be supportive of flows and drive refunding activity."
Investors remain focused on rates, which are likely to remain low for the time being, according to the report.
"This revised forecast is based on the team's 'forecast of declining year over year core inflation in early 2016' and recent market volatility," Barclays said.
Barclays also said high-yield investors will remain focused on the Puerto Rico story as the market awaits details of the working group plan.
"PREPA's recent agreement with certain bondholders helps bring some clarity to the situation, though questions remain. We continue to expect volatility in the Puerto Rico credit universe as developments unfold," said the report.
Turning to the broader market, Barclays sees compelling relative value within the AA-rated 20-year part of the electric sector versus the A-rated 20-year portion. In taxables, the report finds value in the leasing sector, while Barclays is somewhat cautious about education and water and sewer.
"The yield on the sector increased three basis points over the month, to 2.3%. The yield differential between the AA-rated and A-rated in the 20-year range has averaged 53 basis points over the past year, but has recently tightened to 13 basis points," the report said.
Tax-Exempt Money Market Funds See Outflows
Tax-exempt money market funds experienced outflows of $810.7 million, bringing total net assets to $246.69 billion in the period ended Aug. 31, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $350.7 million to $247.49 billion in the previous week.
The average, seven-day simple yield for the 382 weekly reporting tax-exempt funds remained at 0.01% for the 122nd straight week.
The total net assets of the 965 weekly reporting taxable money funds fell $28.53 billion to $2.440 trillion in the period ended Sept. 1, after experiencing an inflow of $20.47 billion to $2.468 trillion in the prior week.
The average, seven-day simple yield for the taxable money funds remained at 0.02% for the 33rd week in a row.
Overall, the combined total net assets of the 1,348 weekly reporting money funds decreased $29.34 billion to $2.687 trillion in the period ended Sept. 1, which followed an inflow of $20.82 billion to $2.716 trillion the week before.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 41,585 trades on Wednesday on volume of $7.753 billion.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar fell $1.16 billion to $6.37 billion on Thursday. The total is comprised of $2.17 billion competitive sales and $4.20 billion of negotiated deals.
