Is short-end muni cheapness driving demand?
Shorter maturity municipal debt may be growing more attractive to investors as the yield curve flattens.
Although they are hungry for yield, investors are not reaching for yield on the long end, a New York trader at a large Wall Street firm said Thursday.
“You’re seeing this yield curve cheapening on the front end, so we’re getting flatter,” he said. “A lot of people like to buy that short end, so that could be a good thing to get people off the sidelines, and we are already starting to see that.”
He said munis began Thursday on the weaker side ahead of the new-issue calendar for next week. “It’s definitely weaker now — there’s so much money out there,” the trader said.
The spread between the two- and 10-year maturities early on Thursday was “a little wider,” contributing to demand on the short end. “If they can buy New York paper at 2% within a year, they like that,” he said.
Municipal bonds were weaker on Thursday, according to a late read of the MBIS benchmark scale. Benchmark muni yields rose less than a basis point across all maturities.
Yields calculated on MBIS’ AAA scale were also higher, gaining less than a basis point in the one- to 30-year maturities.
Treasury bonds were weaker as the Dow Jones Industrial Average, S&P 500 Index and Nasdaq Composite Index were lower in late trading.
Morgan Stanley priced Sacramento County, California's $574.97 million of airport system bonds on Thursday.
The deal came in six tranches including the Series 2018A airport system senior revenue refunding bonds, not subject to the alternative minimum tax; the Series 2018B airport system senior revenue refunding bonds, non-AMT private activity; the Series 2018C airport system senior revenue refunding bonds, AMT; the Series 2018D airport system subordinate revenue refunding bonds, non-AMT; the Series 2018E airport system subordinate revenue refunding bonds, non-AMT private activity; and Series 2018F airport system subordinate revenue refunding bonds, AMT.
Thursday’s bond offering
Click here for the Sacramento pricing
Bond Buyer 30-day visible supply at $8.93B
The Bond Buyer's 30-day visible supply calendar decreased $714.9 million to $8.93 billion on Thursday. The total is comprised of $4.49 billion of competitive sales and $4.44 billion of negotiated deals.
Previous session's activity
The Municipal Securities Rulemaking Board reported 44,673 trades on Wednesday on volume of $16.48 billion.
California, New York and Texas were the states with the most trades, with the Golden State taking 21.099% of the market, the Empire State taking 10.03% and the Lone Star State taking 9.514%.
ICI: Long-term muni funds see $696M outflow
Long-term municipal bond funds saw an outflow of $696 million in the week ended April 11, the Investment Company Institute reported on Wednesday.
This followed an outflow of $110 million into the tax-exempt mutual funds in the week ended April 4 and inflows of $126 million, $769 million and $703 million in the three prior weeks.
Taxable bond funds saw an estimated inflow of $7.14 billion in the latest reporting week, after seeing an inflow of $3.05 billion in the previous week.
ICI said the total estimated inflows to long-term mutual funds and exchange-traded funds were $11.68 billion for the week ended April 11 after outflows of $1.94 billion in the prior week.
Tax-exempt money market funds saw outflows
Tax-exempt money market funds experienced outflows of $2.30 billion, lowering their total net assets to $131.42 billion in the week ended April 17, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $573.3 million on to $133.72 billion in the previous week.
The average, seven-day simple yield for the 202 weekly reporting tax-exempt funds climbed to 1.17% from 1.09% the previous week.
The total net assets of the 830 weekly reporting taxable money funds decreased $25.76 billion to $2.634 trillion in the week ended April 16, after an outflow of $15.47 billion to $2.659 trillion the week before. The average, seven-day simple yield for the taxable money funds increased to 1.31% from 1.30% from the prior week.
Overall, the combined total net assets of the 1,032 weekly reporting money funds decreased $28.06 billion to $2.765 trillion in the week ended April 16, after outflows of $14.89 billion to $2.793 trillion in the prior week.
Treasury announces sale schedule
The Treasury Department announced these auctions:
- $29 billion seven-year notes selling on April 26;
- $35 billion five-year notes selling on April 25;
- $32 billion two-year notes selling on April 24;
- $17 billion two-year floating rate notes selling on April 25;
- $26 billion 364-day bills selling on April 24;
- $42 billion 182-day bills selling on April 23; and
- $48 billion 91-day bills selling on April 23.
Treasury auctions $16B of 4-week bills
The Treasury Department Thursday auctioned $16 billion of five-year inflation-indexed notes with a 5/8% coupon, at a 0.631% high yield, an adjusted price of 100.196611. The bid-to-cover ratio was 2.44.
Tenders at the high yield were allotted 24.49%. All competitive tenders at lower yields were accepted in full. The median yield was 0.567%. The low yield was 0.200%.
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.