The municipal bond market finished off the last of this week's big deals as issuers from Tennessee and Florida sold bonds competitively on Thursday.
Prices of high-quality municipal bonds were weaker, traders said, as Treasury bond prices moved lower as well.
"Anytime you see red on the Treasury screens, you have people who will cut their offerings," said a Midwest trader. "And cutting an already steamy deal is not generating a lot of interest."
Primary Market
Shelby County, Tenn., sold $172.665 million of general obligation refunding bonds in a competitive sale.
Wells Fargo Securities won the bond deal with a true interest cost of 1.5%. The bonds were priced to yield from 0.15% with a 2% coupon in 2015 to 2.11% with a 5% coupon in 2027. The deal is rated Aa2 by Moody's Investors Service and AA-plus by both Standard & Poor's and Fitch Ratings.
The Florida Department of Management Services sold $103.175 million of refunding certificates of participation.
Citigroup Global Markets won the COPs with a TIC of 1.8391% and priced them to yield from 0.10% with a 5% coupon in 2015 to 2.29% with a 5% coupon in 2025. The issue is rated Aa2 by Moody's and AA-plus by S&P and Fitch.
Secondary Market
Prices of top-quality municipal bonds were lower on Thursday, according to traders.
The yield on the benchmark 10-year general obligation rose two basis points to 1.91% from 1.89% on Wednesday, while the yield on 30-year GOs was up four basis points to 2.71% from 2.67%, according to the final read of Municipal Market Data's triple-A scale. On Jan. 8, 2013, the yield on the 10-year stood at 2.74% while the yield on the 30-year was at 4.13%.
Treasury prices were mostly lower on Thursday, with the two-year note yield down to 0.61% from 0.62% on Wednesday. The 10-year yield rose to 2.02% from 1.96%, while the 30-year yield increased to 2.60% from 2.52%.
The 10-year muni to Treasury ratio fell to 94.6% on Thursday from 96.4% on Wednesday, while the 30-year muni to Treasury ratio dipped to 104.4% from 106.0%.
"Each time we got around 2% on Treasury 10s it's hard to put muni bonds away. People are looking at the outright levels," the Midwest trader said. "Outright yield levels are getting real low and no one is excited about it - but they are hoping the December employment report that comes out on Friday will change that."
Meanwhile, some market participants said fundamentals will play an important role in performance going forward.
"So far the supply and demand imbalance that helped drive last year's strong muni performance is still in place," says James Colby, senior municipal strategist and portfolio manager at Van Eck Global. "There continues to be reinvestment demand in the form of cash arriving in client accounts from coupon payments, maturities, and bond calls that generally help buoy the market, while issuers appear to remain reluctant or possibly unable to fill that demand with additional new supply."
MSRB Reports Previous Session's Activity
The Municipal Securities Rulemaking Board reported 39,743 trades on Wednesday on volume of $10.111 billion. Most active on Wednesday, based on the number of trades, was the New Jersey Transportation Trust Fund Authority transportation program bond, Series AA 4 1/4s of 2044, which traded 125 times with an average price of 102.351 and an average yield of 3.949%.
Tax-Exempt Money Market Funds See Inflows
Tax-exempt money market fund inflows increased $4.371 billion, bringing their total net assets to $264.656 billion in the week ended Jan. 6, according to The Money Fund Report, a service of iMoneyNet.com. The funds had $709.6 million of inflows in the previous week.
The average seven-day yield for the 396 weekly reporting tax-exempt money funds held steady at 0.1%, while the average maturity decreased by two days to 36.
The 994 weekly reporting taxable money market funds, meanwhile, reported outflows of $26.783 billion, bringing total assets to $2.467 trillion. The average, seven-day yield for the taxable money funds remained unchanged at 0.01%, while the average maturity remained steady at 43 days.
Overall, the combined total net assets of the 1,390 weekly reporting money funds fell $22.412 billion in the week ended Jan. 6 to $2.732 trillion, marking the first time in 11 weeks the funds experienced a decline, according to The Money Fund Report.
