The municipal bond market is looking ahead to the new week's lighter calendar — and to the last full trading week of the year. Traders took a breather after seeing between $25 billion and $28 billion in new supply come to market in just the past two weeks.
Municipal bond prices closed out the week higher, with the yield on the benchmark 10-year falling under 2%, according to Municipal Market Data.
Primary Market
Volume for the week of Dec. 15 is estimated at $3.737 billion, according to Ipreo and The Bond Buyer. This is down from total sales of $12.973 billion the week of Dec. 8, according to Thomson Reuters.
"We are knee deep in a classic year-end rush to market," according to the latest a BofA Merrill Lynch Global Research report. "Issuance is $28 billion month to date, making issuance year to date $323.6 billion. We are closing in on our 2014 issuance target of $330 billion."
Municipal bond issuance totaled $333.8 billion for 2013, according to Thomson Reuters.
Topping the negotiated calendar is a $436 million deal from the New York State Dormitory Authority. Bank of America Merrill Lynch will price the DASNY tax-exempt personal income tax revenue bonds on Tuesday after a one-day retail order period on Monday. The bonds are rated Aa1 by Moody's Investors Service and AAA by Standard & Poor's.
Leading the competitive slate is a two-part $205.235 million sale from Massachusetts. The commonwealth has scheduled a sale of SIFMA-indexed general obligation refunding bonds on Wednesday, consisting of $33.435 million Series D and $171.8 million Series E bonds.
But one deal that won't be coming to market is the Pennsylvania Commonwealth Financing Authority's $198.7 million revenue bonds originally set for sale on Thursday, Dec. 19. The CFA and the Office of the Budget cancelled the sale because the audited financial data to be reported in the commonwealth's Comprehensive Annual Financial Report for fiscal 2014 was not ready.
The terms of the bond purchase agreement between the CFA and PNC Capital Markets LLC required delivery of a complete, final official statement by the end of Thursday. The CAFR is expected to be completed by Dec. 31, after which the CFA expects to undertake a new sale.
Secondary Market
High-grade municipal bond prices moved higher on Friday.
The yield on the benchmark 10-year general obligation was off three basis points to 1.98% from 2.01% on Thursday while the yield on 30-year GOs was down two basis points to 2.88% from 2.90%, according to a the final read of Municipal Market Data's triple-A scale. The last time the 10-year yield was under 2% was on Oct. 20.
Treasury prices were higher on Friday, with the two-year note yield falling to 0.55% from 0.60% on Thursday. The 10-year yield fell to 2.10% from 2.17% while the 30-year decreased to 2.76% from 2.82% on Thursday.
The 10-year muni-to-Treasury ratio was calculated at 94.5% on Friday versus 92.3% on Thursday; the 30-year muni to Treasury ratio was at 104.7%, compared with 102.6% on Wednesday. The ratio is calculated by taking the yield on a triple-A rated muni and comparing it to the yield on a Treasury of the same maturity. The higher the ratio, the more attractive munis are to Treasuries.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 41,188 trades for Thursday on volume of $16.335 billion.
Most active on Thursday, based on the number of trades, were the New York City Housing Development Corp.'s multi-family housing revenue bonds 12/18/2014 Series G 3.9% of 05/01/2045, which traded 166 times with an average price of 99.747 and an average yield of 3.9%.
Muni Bond Funds See Inflows, Lipper Reports
U.S. municipal bond funds again reported cash inflows for the week ended Dec. 11, according to Lipper data.
Muni bond funds posted $695.479 million of net inflows in the latest reporting week after recording net inflows of $172.689 million in the previous week, Lipper FMI reported.
The four-week moving average was positive at $505.520 million in the latest week.
"The lower interest rates across the board in the muni market gave investors increased confidence. This week's fund inflow increase is also another encouraging sign of the state of the market especially when the heavy new issue calendar is considered," said MMD Senior Market Strategist Daniel Berger. "In fact, there was an abundance of cash available and we heard complaints about loan allocations for many deals that were heavily oversubscribed."
Long-term muni bond funds saw inflows of $407.260 million in the latest week, compared to inflows of $36.766 million in the previous week.
High-yield muni funds recorded inflows of $286.277 million after inflows of $117.377 million the previous week. Exchange-traded funds had inflows of $89.761 million, after inflows of $9.019 million the previous week. Municipal bond funds are popular with individual investors and they have poured money into the funds in 43 of the 50 weeks of this year.
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.
Christine Albano, Paul Burton and Gary Siegel contributed to this report.
