The municipal bond market saw the last of this week's big new issues come to market on Thursday as muni bond prices remained unchanged.
Market Size Shrinks
The total size of the municipal bond market declined in the third quarter of the year, according to the Federal Reserve, dropping to its lowest level in more than five years.
Data released on Thursday in the Fed's quarterly flow of funds report shows the muni market shrank to $3.63 trillion from $3.66 trillion in the second quarter. In the third quarter of 2013, the amount of muni bonds outstanding totaled $3.69 trillion.
The size of the market has been steadily contracting since its height in 2010, when the issuance of Build America Bonds pushed the overall amount of outstanding muni debt up to $3.77 trillion.
In the latest quarter, retail investors shed muni debt while institutions stepped up their acquisitions.
The amount of muni bonds held by households fell to $1.558 trillion in the third quarter from $1.604 trillion in the second quarter. Holdings by banks, however, rose to $440.4 billion in the third quarter from $429.9 billion in the previous quarter.
Muni holdings by mutual funds rose to $645.4 billion in the third quarter from $630.4 billion in the second quarter while money market mutual funds holdings declined to $278.7 billion from $281.4 billion in the second quarter.
Property-casualty insurance companies increased their muni holdings to $326.5 billion in the third quarter from $325.8 billion while holdings by life insurance companies rose to $148.0 billion from $146.8 billion in the second quarter, according to the Fed.
Primary Market
Morgan Stanley priced the Bexar County, Texas' $262.105 million issue in four series. The $86.48 million certificates of participation were priced to yield from 0.65% with a 3% coupon in 2017 to 2.86% with a 5% coupon in 2034; a 2040 maturity was priced as 5s to yield 3.08% and the 2016 maturity was offered as a sealed bid. The $9.215 million unlimited tax refunding bonds were priced to yield from 0.98% with a 1.5% coupon in 2018 to 2.56% with a 5% coupon in 2028. The $54.4 million limited tax refunding bonds were priced to yield from 0.65% with a 4% coupon in 2017 to 2.56% with a 5% coupon in 2028; the 2015-16 maturities were offered as sealed bids.
The $112.01 million flood control tax refunding bonds were priced to yield from 0.65% with a 5% coupon in 2017 to 3.21% with 4% coupon in 2034; a 2038 maturity was priced as 5s to yield 3.02%. The issue is rated triple-A by Moody's Investors Service and Fitch Ratings and AA-plus by Standard & Poor's.
JPMorgan Securities priced the Omaha Public Power District, Neb., $351.325 million electric system revenue bonds in two series. The $95.975 million Series A bonds were priced to yield from 1.92% with a 3% coupon in 2022 to 2.91% with a 5% coupon in 2034; a 2039 maturity was priced as 5s to yield 3.10% and a 2045 maturity was prices as 5s to yield 3.20%. The $255.35 million Series B bonds were priced to yield from 0.87% with a 3% coupon in 2018 to 2.91% with a 5% coupon in 2034; a 2039 maturity was prices as 4s to yield 3.55% and the 2017 maturity was offered as a sealed bid. The issue is rated Aa2 by Moody's and AA by S&P.
In the competitive sector, Citigroup Global Markets won New Hampshire's $55.265 million general obligation capital improvement bonds with a true interest cost of 2.6204%. The bonds were priced to yield from 0.14% with 3% coupon in 2015 to 2.71% with a 5% coupon in 2034. The issue is rated Aa1 by Moody's, AA by S&P and AA-plus by Fitch.
Secondary Market
High-grade municipal bond prices were unchanged on Thursday. The yield on the benchmark 10-year general obligation was flat at 2.01% from Wednesday, while the yield on 30-year GOs was unchanged at 2.90%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were mixed on Thursday, with the two-year note yield rising to 0.60% from 0.58% on Tuesday. The 10-year yield fell to 2.17% from 2.18% while the 30-year declined to 2.82% from 2.85% on Tuesday.
The 10-year muni-to-Treasury ratio closed on Thursday at 92.3% versus 93.1% on Wednesday; the 30-year muni to Treasury ratio closed at 102.6%, compared with 102.6% on Wednesday.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 42,630 trades for Wednesday on volume of $16.335 billion. Most active on Wednesday, based on the number of trades, was the Bay Area Toll Authority's toll bridge revenue bonds, San Francisco Bay Area, 5s of 2054, which traded 113 times with an average price of 110.661 and an average yield of 3.703. The second most active was the New Jersey Transportation Trust Fund Authority transportation program bonds, Series AA 4 1/4s of 2044, which traded 105 times with an average price of 100.131 and an average yield of 4.21%.
Muni Money Funds Grow by $2.06B
Tax-exempt money market funds grew by $2.06 billion and total net assets increased to $254.71 billion in the week ended Dec. 8, according to The Money Fund Report, a service of iMoneyNet.com. The inflows are up from the $800,000 that trickled out of the industry in the prior week.
The average seven-day yield for the 400 weekly reporting tax-exempt money funds held steady at 0.1%, while the average maturity increased by one day to 40 days compared to last week.
The 997 weekly reporting taxable money market funds, meanwhile, reported inflows of $19.83 billion in the week ended Dec. 9, which is up from the $7.84 billion of inflows in the prior week.
The average, seven day yield for the taxable money funds remained unchanged at 0.01%, while the average maturity remained at 45 days.
Overall, the total net assets of the 1,397 weekly reporting money funds increased by $21.89 billion to $2.716 trillion in the week ended Dec. 9 — the eighth consecutive week of inflows and the largest weekly increase since the week ended Sept. 23, according to the report.
The inflows were nearly triple the $7.84 billion of new cash that arrived into the industry in the previous week.
Christine Albano contributed to this story.
