Bond yields at a glance

MBIS benchmark (~AA)

MBIS AAA

MMD AAA

U.S. Treasuries

10 year

2.665

2.573

2.39 (+3-5 bps)

2.83

30 year

3.083

3.006

2.94 (+3-5 bps)

3.12

MBIS indices are updated hourly on the Bond Buyer Data Workstation.

Wariness was the watchword among municipal bond market participants on Thursday as yields began to march back higher.

Buyside sources said there was still a tentative mood among investors.

“The tax-exempt muni market right now is all about high correlation with Treasuries as rates go higher with steeper curves,” said Peter Block, managing director of credit strategy at Ramirez & Co. on Thursday morning. “There appears to an imbalance of sellers versus buyers right now as 2s and 30s became rich and the critical five-year and 10-year spots underperformed.”

He added, “there is still a lot of cash that is waiting to be deployed in munis, but we think investors are cautious right now, waiting for better entry points as we have yet to settle into a tighter trading range.”

Block said the most recent catalyst for the higher volatility in the rates market (and also in equities) was Wednesday's Treasury auction of $24 billion of 10-year notes, the weakest sale in five months.

“The weak auction was the result of the bi-partisan Senate agreement on a two-year Federal budget that includes an additional $300 billion of spending and wider deficits,” Block explained.

He said the auction caused 10- and 30-year rates to rise, reflecting more Treasury supply and possibly an accelerated pace of Federal Reserve rate increases.

“There is some sentiment that the Fed may be ‘behind the curve’ in raising rates. On top of that, today we had hawkish comments from BOE that said rate increases there may be needed earlier and faster,” he said, adding, “this comment helped push the 30-year Treasury above 3.14% ahead of today's $16 billion auction.”

Primary market
The Pennsylvania Commonwealth Financing Authority on Thursday released a second supplement to the preliminary official statement on its sale of $1.39 billion of tobacco master settlement payment revenue bonds, which is currently on the day-to-day calendar.

Morgan Stanley is set to price the Los Angeles Department of Water and Power’s $231 million of Series 2018A water system revenue bonds for retail investors on Thursday after holding a one-day retail order period.

The issue was priced for retail as 5s to yield from 1.83% in 2023 to 2.98% in 2039. Yields on the serial scale ranged from seven basis points below the comparable MMD triple-A security to 15 basis above the MMD read.

A 2043 term bond was priced for retail as 5s to yield 3.02%, about 15 basis points above the MMD scale, and a 2048 term was priced as 5s about 15 basis points above the comparable MMD maturity.

The deal is rated Aa2 by Moody’s Investors Service, AA-plus by S&P Global Ratings and AA by Fitch Ratings.

Since 2008, LADWP has sold about $13 billion of debt, with the most issuance occurring in 2010 when it offered $2.06 billion of bonds. It sold the least amount of bonds in that time frame in 2008, when it sold $550 million of debt.

In the competitive arena, Silicon Valley Clean Water, San Mateo County, Calif., sold sell $137.67 million of Series 2018 wastewater revenue bonds.

Morgan Stanley won the bonds with a true interest cost of 3.4382%. Pricing information was not immediately available.

The deal is rated Aa2 by Moody’s and AA by S&P.

The issuer has come to market only twice before in the past 10 years — selling $130.2 million of bonds: $60 million in 2014 and $70.2 million in 2015.

ICI: Long-term muni funds see $1.89 billion inflow
Long-term municipal bond funds saw an inflow of $1.89 billion in the week ended Jan. 31, the Investment Company Institute reported on Wednesday.

This followed an inflow of $2.46 billion into the tax-exempt mutual funds in the week ended Jan. 24 and inflows of $2.46 billion, $3.16 billion and $509 million in the previous three weeks.

Taxable bond funds saw estimated inflows of $7.36 billion in the latest reporting week, after experiencing inflows of $12.66 billion in the previous week.

ICI said the total estimated inflows to long-term mutual funds and exchange-traded funds were $21.93 billion for the week ended Jan. 31.

Tax-exempt money market funds saw inflows
Tax-exempt money market funds experienced inflows of $841.3 million, bringing total net assets to $138.36 billion in the week ended Feb. 6, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $285.1 billion on to $137.52 billion in the previous week.

The average, seven-day simple yield for the 197 weekly reporting tax-exempt funds fell to 0.62% from 0.69% the previous week.

The total net assets of the 828 weekly reporting taxable money funds increased $7.85 billion to $2.646 trillion in the week ended Feb. 5, after an inflow of $25.32 billion to $2.638 trillion the week before.

The average, seven-day simple yield for the taxable money funds increased to 0.98% from 0.97% from the prior week.

Overall, the combined total net assets of the 1,025 weekly reporting money funds increased $8.69 billion to $2.784 trillion in the week ended Feb. 5, after outflows of $25.61billion to $2.775 trillion in the prior week.

Previous session's activity
On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 84.0% compared with 85.6% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 94.3% versus 96.0%, according to MMD.

The Municipal Securities Rulemaking Board reported 47,387 trades on Wednesday on volume of $13.08 billion. California, Texas and New York were the three states with the most trades on Wednesday, with the Golden State taking 15.09% of the market, the Empire State taking 12.679% and the Lone Star State taking 9.902%.

Treasury to sell bills next week
The Treasury Department announced the following auctions for next week: $48 billion 91-day bills selling on Feb. 12; $42 billion 182-day bills selling on Feb. 12; and $37 billion 30-year TIPs selling on Feb. 15.

Gary Siegel contributed to this report.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.

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Chip Barnett

Chip Barnett

Chip Barnett is a journalist with more than 40 years of experience. Barnett is currently Senior Market Reporter for The Bond Buyer.
Christine Albano

Christine Albano

Christine Albano is a reporter in the Investor’s & Investing beat, which she has covered for the past two decades. She has a wide range of buy side sources in the municipal market.
Aaron Weitzman

Aaron Weitzman

Aaron Weitzman is a markets reporter for The Bond Buyer, focusing on the sell side of the municipal bond market.