The recent rally in municipal bond prices stalled out a bit on Friday, traders said, as yields finished mixed on the day, with price strength on the short end balanced off by weakness on the long end.
Meanwhile, in the upcoming holiday-shortened week, about $7.82 billion of new supply will be coming to market. Trading will resume on Tuesday after the Martin Luther King, Jr., holiday on Monday.
Tax-Exempt Bond Funds See Inflows
Municipal bond funds which report weekly posted $688.522 billion of inflows in the week ended Jan. 14, after seeing inflows of $1.338 billion in the previous week, according to the latest Lipper data.
"When you look at the pickup in issuance you still have an overwhelming abundance in maturities and on top you have inflows, the supply and demand dynamics are off to a roaring start in 2015 and I don't see it trailing off anytime soon," said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management. "And until it changes, we will continue to see nice, positive cash inflows into the market."
The four-week moving average remained positive at $669.041 million in the latest week after remaining in the green at $649.675 million in the prior week. A moving average is an analytical tool used to smooth out price moves by filtering out fluctuations.
Long-term muni bond funds had inflows of $588.754 million in the latest week, after inflows of $821.434 million in the previous week. Exchange-traded funds had inflows of $128.344 million, after reporting inflows of $158.198 million in the previous week.
Heckman added that high net worth investors will see the fundamental value of tax-exemption as they start to prepare their taxes ahead of the April filing deadline.
Separately, he noted that the decline in muni bond yields has led some investors to take a second look at higher yielding, but riskier, bond funds.
"For the right type of investor, some kind of high-yield munis can be appropriate," Heckman said. "There are some good opportunities there."
High-yield muni funds recorded inflows of $259.074 million in the latest reporting week, after inflows of $336.200 million in the previous week.
Atlantic City Looks to Sell $140M Bonds in Q1
Atlantic City, N.J., may reschedule for the first quarter a $140 million bond sale that was canceled last year, according to City Revenue Director Michael Stinson.
The city is looking for underwriters, bond counsel and other staff to work on the deal, Stinson said.
The city has until March 31 to repay $40 million it borrowed from the state after it canceled an earlier, trimmed down sale, and the sale will help it raise an additional $100 million for municipal expenses.
The city had originally planned the $140 million bond sale for last November, then scaled plans back to a smaller sale of $40 million, which was then delayed because of concerns about the city's finances in the wake of four casino closures.
Stinson said the city is also planning a one-year bond anticipation note sale by the end of the month that will pay down $800,000 on the $12.8 in outstanding BANs that come due on Feb. 1.
Secondary Market
Prices of top-shelf municipal bond prices turned mixed on Friday, traders said.
At the end of the week, the yield on the 10-year benchmark general obligation remained unchanged at 1.75% from Thursday, while the yield on 30-year GOs rose two basis points to 2.54% from 2.52%, according to a final read of Municipal Market Data's triple-A benchmark scale.
At the start of the week, the 10-year yield stood at 1.84% and the 30-year was at 2.63%. Since the beginning of the month, muni yields on the 10- and 30-year have declined about 25 and 30 basis points, respectively.
On Friday, Treasury prices were mixed, with the two-year note yield rising to 0.47% from 0.44% on Thursday. The 10-year yield was up to 1.81% from 1.77%, while the 30-year yield rose to 2.43% from 2.41%.
The 10-year muni to Treasury ratio was at 96.7% on Friday compared to 98.9% on Thursday, while the 30-year muni to Treasury ratio was at 104.5% versus 104.7%.
MSRB Reports Previous Session's Activity
The Municipal Securities Rulemaking Board reported 40,552 trades on Thursday on volume of $12.148 billion. Most active on Thursday, based on the number of trades, was the New York City Transitional Finance Authority's Building Aid Revenue Bonds 2015 Series S-1 3 1/8s due 2032, which traded 349 times with an average price of 99.574 and an average yield of 3.157%.
