Prices of top-shelf municipal bonds finished stronger on Thursday, according to traders, after the Federal Reserve decided not to raise interest rates.
The Federal Open Market Committee wound up its two-day meeting and left interest rates unchanged, citing continued geopolitical risks in a low U.S. inflation environment. The FOMC left its target for the benchmark federal funds rate at between zero and 0.25%.
The yield on the 10-year benchmark muni general obligation finished four basis points lower at 2.22% from 2.26% on Wednesday, while the yield on the 30-year GO was three basis points weaker at 3.22% from 3.25%, according to the final read of Municipal Market Data's triple-A scale.
On Thursday, Sept. 10, the yield on the 10-year muni stood at 2.23% while the 30-year muni yield was at 3.20%.
The FOMC said it will raise rates when it has seen "some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term." Inflation, as measured by the Fed, was 0.3% in the 12 months through July and been under 2% for over three years.
The last time the Fed raised rates was in June 2006; it cut and has kept its target rate at the current level since December 2008.
Market participants will now look ahead as the Fed may wait until 2016 to raise its benchmark rate.
"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the Fed said it its statement.
"The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction," the Fed said. "This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions."
As of late Friday, futures traders were now pricing in a 21% chance that the Fed will hike at the October FOMC meeting, a 49.5% chance it will raise rates at the December meeting and a 56.5% chance it will do it at the January meeting, according to Bloomberg.
However, some market participants now believe the best chance for the Fed's to next raise rates will be at the March 2016 meeting, which will be followed by a press conference with Fed Chair Janet Yellen.
Treasury prices were higher on Thursday, with the yield on the two-year Treasury note slipping to 0.70% from 0.80% on Wednesday, while the 10-year yield dropped to 2.22% from 2.29% and the 30-year yield decreased to 3.02% from 3.08%.
The 10-year muni to Treasury ratio was calculated on Thursday at 100.2% versus 98.1% on Wednesday, while the 30-year muni to Treasury ratio stood at 106.2% compared to 105.1%, according to MMD.
Tax-Exempt Money Market Funds Post Outflows
Tax-exempt money market funds experienced outflows of $1.87 billion, bringing total net assets to $247.05 billion in the period ended Sept. 14, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $2.23 billion to $248.92 billion in the previous week.
The average, seven-day simple yield for the 377 weekly reporting tax-exempt funds remained at 0.01% for the 124th straight week.
The total net assets of the 949 weekly reporting taxable money funds fell $3.96 billion to $2.423 trillion in the period ended Sept. 15, after an outflow of $13.42 billion to $2.427 trillion the previous week.
The average, seven-day simple yield for the taxable money funds remained at 0.02% for the 35th week in a row.
Overall, the combined total net assets of the 1,326 weekly reporting money funds decreased $5.83 billion to $2.670 trillion in the period ended Sept. 15, which followed an outflow of $11.19 billion to $2.675 trillion the week before.
Primary Market
There were no major deals slated for pricing on Thursday or Friday.
Barclays Capital Markets received the official award on the Illinois Finance Authority’s $368.15 million of Series 2015A revenue bonds for the OSF Healthcare System.
The bonds were priced to yield from 1.18% with a 4% coupon in 2017 to 4.10% with a 5% coupon in 2035; a 2037 maturity was priced as 4 1/8s to yield approximately 4.373% and a 2045 maturity was priced as 5s to yield 4.33%.
The issue was rated A2 by Moody’s Investors Service, and A by Standard & Poor’s and Fitch Ratings.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 39,234 trades on Wednesday on volume of $7.577 billion.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar fell $2.48 billion to $6.47 billion on Thursday. The total is comprised of $2.81 billion competitive sales and $3.65 billion of negotiated deals.
