Trading in the municipal market remained high in the past week even though it was shortened by the Veteran's Day holiday.
Market participants had originally predicted that buying on bonds both in the primary and the secondary might decline because the bond market was closed on Tuesday. Then a sell-off on Nov. 7 from Nov. 3 pushed the benchmark 10-year triple-A general obligation bond's yield seven basis points higher to 2.17%, according to Municipal Market Data's triple-A scale.
The 30-year yield increased by three basis points to 3.07% during the same period.
Traders said this yield hike made municipal bonds more attractive, and predicted that if any investors had cash on the sidelines it would flood into the market. They also said the performance of deals in the primary would be boosted by the fact many bondholders recently received coupon payments or had their bonds mature, increasing the amount they had to reinvest in the muni market.
Some traders also pointed out that it's tax filing season and that causes investors to shift around their assets and potentially invest in municipal bonds.
Investors' appetite for munis was evident in a sevenfold increase in inflows for all municipal bond funds rising. Funds that report weekly had $649 million of inflows for the period ending Nov. 12, up from $85.3 million the week before, according to Lipper FMI.
Incentive to buy municipal bonds was heightened as their yields held steady across the curve through Thursday's market close, with the 10-year and 30-year's yield ending at the same levels they were on Nov. 7.
On Friday bonds weakened with yields on securities maturing in seven to 19 years rising by one basis point, according to MMD. Yields on bonds maturing in 27 to 30 basis points also rose by one basis point, and the rest of the curve held steady.
Demand was strong enough to prompt investors to buy bonds with longer maturities, as was seen with the $394.4 million New York City Water Finance Authority and the $205.43 million Hospital Authority of Hall County and the City of Gainesville deals.
Investors had originally been skeptical of the deals' longer maturities, saying they might be a hard sell.
Instead, the NYC deal was able to reprice its longest 2045 maturity at a lower yield during the day, and even though the Hospital Authority of Hall County and the City of Gainesville bonds matured in 2046, 2049 and 2054 a trader in New York called the pricing "very attractive" and predicted the deal "would do fine".
The two largest deals of the week — a $1.2 billion California sale and a $1 billion Hawaii general obligation offering — both did well, according to market participants.
The deals also reaffirmed the market's appetite for taxable paper, since both issuances had taxable portions that investors said at the beginning of the week they considered more interesting than the tax-exempt parts and that generated a lot of buy side interest after pricing.
Assets of all weekly reporting muni funds increased to $314.3 billion from $313.7 billion. The four-week moving average grew to $203.1 million from $151.8 million.
Flows for long-term muni funds reversed, as they reported $186 million in inflows after $191.7 million in outflows last week.
Long-term municipal mutual fund assets rose to $165 billion from $164.8 billion last week. The four-week moving average for the long-term funds came in negative with an outflow of $1.2 million, down from $90.8 million last week. This is because the previous four week moving average included an inflow of $554 million the week of Oct. 15..
High yield funds recovered, reporting inflows totaling $127.5 million following inflows of $18.4 million previously. Assets rose to $48.2 billion from $48.1 billion last week. The four-week moving average fell to $29.4 million from $82.7 million.
The four-week moving average fell to $29.4 million from $82.7 million.
