How a surprise from the Fed could end munis' inflow streak

Register now

The municipal bond market is expected to attract inflows at least for the next week. After that the ball's in the Federal Open Market Committee's court.

“Another week, another muni inflow,” Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management said. “The new supply coming in next week is not enough to feed the beast if you will.”

There is an estimated $6.7 billion coming through the pipeline next week, with $5.09 billion of negotiated deals and $1.60 billion of competitives. There are 16 deals scheduled $100 million or larger.

So what would it take to put an end to the streak now at 28 weeks in a row of inflows into muni bond funds and put a kink in the rally in the asset class?

“A negative reaction from the bond market about fed actions or lack thereof, could spook the market,” Heckman said. “I think there is a 0% chance of a 50 basis point cut; it will either be a hold or a cut of 25 basis points. so don’t be surprised if they don’t cut rates, as I think It would be prudent to hold and save all of their bullets.”

He added that both the primary and secondary are tough environments for buyers, with tight spreads that could get even tighter.

Look for “good times to extend for at least another week up until the Fed, and then we will see what happens.”

New York City (Aa1/AA/AA) is set to sell a total of $1.54 billion of general obligation bonds, consisting of a $938 million negotiated offering and two taxable competitive deals equaling $600 million. Ramirez is slated to run the books on the negotiated portion on Wednesday.

JPMorgan is scheduled to price California Health Facilities Financing Authority’s (A1/A+/NR) $329.425 million of revenue bonds on Tuesday.

Siebert Cisneros Shank is expected to price San Antonio Independent School District’s (Aaa/ /AAA) $281.385 million of unlimited tax school building and refunding bonds on Tuesday.

On Thursday, Connecticut (A1/A/A+) will competitively sell $244.3 million of GO refunding bonds.

Lipper: More inflows into muni funds
For 28 straight weeks investors have poured cash into municipal bond funds, according to data from Refinitiv Lipper. The latest inflow marks the fourth week in a row and eight of the past 12 weeks that inflows have met or exceeded $1 billion.


Tax-exempt mutual funds that report weekly received $1.666 billion of inflows in the week ended July 10 after inflows of $1.009 billion in the previous week.

Exchange-traded muni funds reported inflows of $236.998 million after inflows of $124.122 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.429 billion after inflows of $884.860 million in the previous week.

The four-week moving average remained positive at $1.396 billion, after being in the green at $1.193 billion in the previous week.

Long-term muni bond funds had inflows of $1.233 billion in the latest week after inflows of $801.608 million in the previous week. Intermediate-term funds had inflows of $162.772 million after inflows of $146.174 million in the prior week.

National funds had inflows of $1.469 billion after inflows of $922.178 million in the previous week. High-yield muni funds reported inflows of $525.472 million in the latest week, after inflows of $345.109 million the previous week.

On Wednesday, the Investment Company Institute reported long-term municipal bond funds and exchange-traded funds saw a combined inflow of $2.164 billion in the week ended July 10, while long-term muni funds alone saw an inflow of $1.903 billion and ETF muni funds saw an inflow of $261 million.

Secondary market
Munis were mixed in late trade on the MBIS benchmark scale, with yields rising no more than two basis points in the 10-year and falling less than a basis point in the 30-year maturity. High-grades followed right along, with MBIS’ AAA scale showing yields rising by two basis points in the 10-year and decreasing less than one basis point in the 30-year maturities.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10- and 30-year GOs were unchanged at 1.56% and 2.27%, respectively.


The 10-year muni-to-Treasury ratio was calculated at 76.2% while the 30-year muni-to-Treasury ratio stood at 88.1%, according to MMD.

Treasuries were stronger as stocks traded in the red. The Treasury three-month was yielding 2.056%, the two-year was yielding 1.822%, the five-year was yielding 1.806%, the 10-year was yielding 2.047% and the 30-year was yielding 2.577%.

"The ICE muni yield curve is within 1/2 basis point of yesterday’s levels with little activity," ICE Data Services said in a Friday market comment. "Tobaccos and high-yield are quiet and unchanged. Taxable yields are up one to two basis points as they follow Treasuries. Puerto Rico is stable."

Previous session's activity
The MSRB reported 32,898 trades Thursday on volume of $12.85 billion. The 30-day average trade summary showed on a par amount basis of $11.39 million that customers bought $6.00 million, customers sold $3.41 million and interdealer trades totaled $1.98 million.

California, New York and Texas were most traded, with the Golden State taking 15.803% of the market, the Empire State taking 12.385% and the Lone Star State taking 11.172%.

The most actively traded security was the Montgomery County, Maryland, bond anticipation note 1.39s of 2019, which traded 14 times on volume of $63 million.

Week's actively traded issues
Some of the most actively traded munis by type in the week ended July 19 were from Guam, California and Illinois issuers, according to IHS Markit.

In the GO bond sector, the Guam 5s of 2031 traded 24 times. In the revenue bond sector, the Foothill/Eastern Transportation Corridor Agency, California, 5s of 2053 traded 38 times. In the taxable bond sector, the Illinois 5.1s of 2033 traded 45 times.

Week's actively quoted issues
Puerto Rico and California names were among the most actively quoted bonds in the week ended July 19, according to IHS Markit.

On the bid side, the Puerto Rico Sales Tax Financing Corp. revenue 5s of 2058 were quoted by 30 unique dealers. On the ask side, the Santa Clara County Finance Authority, California, revenue 3.125s of 2047 were quoted by 134 dealers. Among two-sided quotes, the COFINA revenue 5s of 2058 were quoted by 13 dealers.

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 Ziad Saba at 212-803-6079 for more information.

For reprint and licensing requests for this article, click here.
Primary bond market Secondary bond market Sell side State of California State of New York State of Texas City of New York, NY California Health Facilities Financing Authority State of Connecticut
MORE FROM BOND BUYER