Prices of municipal bonds closed out the week lower, traders said, with yields on some top-rated munis up by as much as nine basis points.
Muni yields have been on the rise since Feb. 1, reversing the January trend of declines that brought yields down to near record lows.
Since the start of the month, the yield on the muni 10-year benchmark general obligation is up by 21 basis points, while yield on the 30-year GO is 25 basis points higher, according to Municipal Market Data's triple-A scale.
Secondary Market
On Friday, the yield on the muni 10-year benchmark general obligation closed up nine basis points to 1.95% from 1.86% on Thursday, while the yield on 30-year GOs rose nine basis points to 2.75% from 2.66%, according to the final read of MMD's triple-A scale.
Treasury prices were also lower. The two-year note yield rose to 0.64% from 0.52% on Thursday, while the 10-year yield increased to 1.94% from 1.81%, and the 30-year yield rose to 2.51% from 2.42%.
The 10-year muni to Treasury ratio decreased to 100.6% on Friday from 102.8% on Thursday, while the 30-year muni to Treasury ratio slipped to 109.7% from 109.9%.
Primary Market
Traders are awaiting the week's new supply calendar while looking at rates to see how they may impact volume for the rest of February.
"The market has gotten a little bit ahead of itself and chopped around a bit," says Jim Grabovac managing director at McDonnell Investment Management. "It's now in a corrective phase and this near-term volatility should work its way out."
Muni volume for the upcoming week is estimated at $7.211 billion, according to Ipreo and The Bond Buyer.
This is up from up a revised $6.921 billion in the previous week, according to Thomson Reuters. The prior week's volume was originally forecast to come in at about $8.8 billion, before the $1 billion tax-exempt portion of the Trinity Health sale was postponed.
On Thursday, Goldman, Sachs priced the $350 million taxable portion of the Trinity deal. The taxables were priced as 4 1/8s to yield 4.13% in a 2045 bullet maturity.
"We were thrilled with the outcome on the taxable deal," said Mark Melio of Melio & Co., Trinity's financial advisor. "The U.S. Treasury bond yield at the time of the deal was 2.43%. ... We were very thrilled to have locked in that rate. The spread to Treasury was 170 basis points." On Friday, the yield on the 30-year Treasury bond was about 10 basis points higher.
Melio said the offering was very well received.
"We had over 50 investors, at least half of which were new investors for Trinity, which we are very excited about," he said, adding that "The deal was nearly three times oversubscribed, hence we had over $1 billion of orders."
Tax-Exempt Bond Funds Report More Inflows
Municipal bond funds which report weekly posted $589.132 million of inflows in the week ended Feb. 4, after seeing inflows of $892.528 million in the week ended Jan. 28, according to the latest Lipper data.
The four-week moving average remained positive at $735.354 million in the latest week after staying in the green at $922.473 million in the prior week. A moving average is an analytical tool used to smooth out price moves by filtering out fluctuations.
Muni bond funds have experienced inflows in each week of 2015, according to Lipper data. Inflows totaled $771.234 million in the week ended Jan. 21; $688.522 million in the week ended Jan. 14; and $1.338 billion in the week ended Jan. 7, a two-year high.
Long-term muni bond funds saw inflows of $373.103 million in the latest week, after inflows of $549.093 million in the previous week.
High-yield muni funds recorded inflows of $164.196 million in the latest reporting week, after inflows of $207.914 million in the prior week.
Exchange-traded funds had inflows of $166.656 million, after reporting inflows of $91.239 million in the previous week.
In contrast, long-term municipal bond mutual funds saw $1.297 billion of inflows in the week ended Jan. 28, according to the Investment Company Institute.
ICI reported that inflows into muni funds were $1.045 billion in the week ended Jan. 21, $968 million in the week ended Jan. 14, and $1.326 billion in the week ended Jan. 7.
Tax-Exempt Money Market Funds See $1.2B Outflow
Tax-exempt money market funds saw assets fall by $1.215 billion to $259.643 billion in the week ended Feb. 3, according to The Money Fund Report, a service of iMoneyNet.com. In the previous week, funds saw outflows of $1.523 billion as assets fell to $260.858 billion.
The average, seven-day yield for the 396 weekly reporting tax-exempt money funds held steady at 0.01% for the 92nd week in a row.
The total net assets of the 992 weekly reporting taxable money funds fell $10.159 billion to $2.447 trillion in the week ended Feb. 3, after seeing a decline of $6.992 billion to $2.457 trillion in the prior week.
The average seven-day yield for the taxable funds was unchanged at 0.02% for the third straight week -- after spending 87 weeks at 0.01%.
Overall the combined total net assets of the 1,388 weekly reporting money funds declined by $11.374 billion to $2.707 trillion after experiencing a loss of $8.519 billion to $2.718 trillion in the previous week.
MSRB Reports Previous Session's Activity
The Municipal Securities Rulemaking Board reported 36,259 trades on Thursday on volume of $10.089 billion. Most active on Thursday, based on the number of trades, was the Indiana State Finance Authority's CWA Authority Project 2015 Series A first lien wastewater utility revenue 3/12s of 2034, which traded 116 times with an average price of 100.155 and an average yield of 3.468%.
