Prices of top-rated municipal bonds plunged at midday, traders said, after the release of a strong employment report that many see as giving a green light to a mid-year interest rate hike by the Federal Reserve. Yields were up by as much as eight basis points on some top-shelf munis.
Meanwhile, municipal bond volume continues to surge, with more than $12 billion of new issues set to be priced next week, the largest new issue slate of 2015.
Secondary Market
The yield on the 10-year benchmark muni general obligation was up from five to seven basis points from 2.09% on Thursday, while the yield on 30-year GO was up from six to eight basis points from 2.93%, according to a read of Municipal Market Data's triple-A scale.
Treasury prices were sharply lower on Friday. The yield on the two-year Treasury note rose to 0.71% from 0.64% on Thursday, while the 10-year yield increased to 2.23% from 2.11% and the 30-year yield was up to 2.85% from 2.72%.
On Thursday, the 10-year muni to Treasury ratio on Thursday was calculated at 99.4% versus 98.2% on Wednesday, while the 30-year muni to Treasury ratio stood at 108.1% compared to 107.4%.
"The 5.5% unemployment rate and the larger-than-expected payroll jump of 295,000 make a rate hike decision easier for Fed," MMD Senior Analyst Randy Smolik wrote in a research note. "A 6.0% unemployment rate was the threshold for the Fed to consider raising rates. ... The Fed has tolerated the lower unemployment rate since wage pressures had not been building, but even that picture was starting to change relative to (the recent) January personal income data."
Primary Market
Volume for the upcoming week is estimated at $12.44 billion, according to Ipreo and The Bond Buyer. This is up from a revised $7.44 billion sold this week, according to Thomson Reuters.
There are $10.42 billion of negotiated deals scheduled for next week and $2.02 billion of competitive sales slated.
Topping the negotiated calendar is a $2.8 billion offering in two separate deals from the University of California. Barclays Capital is set to price the bonds for retail investors on Tuesday followed by an institutional pricing on Wednesday. Raymond James is co-manager on the two series of limited project revenue bonds: a $1.2 billion tax-exempt 2015 Series I and $440 million taxable 2015 Series J. Stifel is the co-manager on the two general revenue bond series: the tax-exempt $770 million Series AO and taxable $370 million 2015 Series AP.
New York City will be selling $1 billion of general obligation bonds next week. RBC Capital Markets is scheduled to price $800 million of tax-exempt fixed-rate refunding bonds on Thursday following a two-day retail order period. NYC also plans to sell about $200 million of taxable fixed-rate bonds, consisting of $100 million of new money bonds and a conversion of around $100 million of VRDBs to fixed-rate on Thursday.
The N.Y. Metropolitan Transportation Authority's $300 million of transportation revenue bonds are expected to be priced by Bank of America Merrill Lynch on Wednesday.
In the competitive arena, Boston will sell $270 million of general obligation and GO refunding bonds in two separate sales on Tuesday.
New York State will sell $320 million of tax-exempt and taxable GOs in two separate competitive sales on Tuesday.
The Rhode Island Tobacco Settlement Finance Corp. is slated to sell $600 million of asset-backed bonds, to be priced by Citigroup Global Markets on Tuesday.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $7.025 billion to $16.045 billion on Friday. The total is comprised of $3.213 billion competitive sales and $12.832 billion of negotiated deals.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 41,039 trades on Thursday on volume of $12.445 billion.
Most active on Thursday, based on the number of trades, was the state of California Series 2015 GO 3s of 2029, which traded 364 times at an average price of 98.059, with an average yield of 3.163%; (initial offering price of 98.094/initial offering yield of yield of 3.17%).
The Week's Most Actively Quoted Issues
New York and New Jersey, Georgia and Puerto Rico names were among the most actively quoted issues in the week ended March 6, according to data released by Markit.
Among bid-side quotes, the Port Authority of New York and New Jersey 5.647s of 2040 were quoted by 10 unique dealers.
Among ask-side quotes, the Atlanta water and wastewater revenue 5s of 2040 were quoted by 18 dealers.
And among two-sided quotes, the Puerto Rico 8s of 2035 were quoted by 11 dealers, Markit said.
The Week's Most Actively Traded Issues
Among the most actively traded issues in the week ended March 6, were issuers from California, Georgia and Iowa, according to Markit.
In the GO bond sector, California 3s of 2029 were traded 78 times.
In the revenue bond sector, the Atlanta water and wastewater 5s of 2040 were traded 99 times.
And in the taxable bond sector, the Iowa special obligation 6.75s of 2034 were traded 39 times, according to Markit.
Tax-Exempt Bond Funds See Inflows
Municipal bond funds which report weekly posted $408.481 million of inflows in the week ended March 4, after experiencing inflows of $429.330 million in the week ended Feb. 18, according to the latest Lipper data.
The four-week moving average remained positive at $339.278 million in the latest week after being in the green at $384.441 million in the prior week. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.
Muni bond funds so far have experienced inflows in each week of 2015, according to Lipper data. Inflows for the year total $5.636 billion.
Long-term muni bond funds saw inflows of $200.363 million in the latest week, after experiencing inflows of $308.995 million in the previous week.
High-yield muni funds recorded inflows of $124.114 million in the latest reporting week, after seeing inflows of $120.709 million in the prior week. Exchange-traded funds had inflows of $83.539 million, after recording inflows of $149.114 million in the previous week.
In contrast, long-term municipal bond mutual funds saw $1.03 billion of inflows in the week ended Feb. 25, according to the Investment Company Institute. ICI reported that inflows into long-term funds were $274 million in the previous week.
