The municipal bond market is looking ahead to next week — the last full trading week of the year. On Friday, traders were taking a breather after seeing heavy supply come to market in the past two weeks.
Primary Market
- Topping the negotiated calendar is a $464 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. The bonds are rated Aa1 by Moody's Investors Service and AAA by Standard & Poor's.
- Citigroup Global Markets will price the Arizona Transportation Board's $380 million highway revenue refunding bonds on Tuesday. The bonds are rated Aa1 by Moody's and AAA by S&P.
- Morgan Stanley is set to price the Metropolitan Water Reclamation District of Greater Chicago's $296.43 million general obligation bond issue consisting of unlimited tax capital improvement green bonds, unlimited tax alternative revenue source green bonds, limited tax capital improvement green bonds and limited tax refunding bonds. The issue is rated AAA by S&P and Fitch Ratings.
- The New York City Housing Development Corp.'s $235 million multi-family rental housing revenue bonds (NYCHA Triborough Preservation Development) will be priced by Morgan Stanley. The issue is rated triple-A by Moody's.
- Siebert Brandford Shank is scheduled to price the Los Angeles Department of Water and Power's $229 million power system revenue bonds on Tuesday after a one-day retail order period. The issue is rated Aa3 by Moody's and AA-minus by S&P and Fitch.
Secondary Market
Treasury prices were higher on Friday, as the two-year note yield declined to 0.56% from 0.60% on Thursday. The 10-year yield fell to 2.12% from 2.17% while the 30-year decreased to 2.77% from 2.82% on Thursday.
On Thursday, high-grade municipal bond prices were unchanged. 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.
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 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 released on Thursday.
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, according to Lipper FMI.
The four-week moving average was positive at $505.520 million in the latest week.
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.
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.
Bond Buyer Yield Indexes Fall
For the week ended Dec. 11, the weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, fell three basis points to 4.32% from 4.35%.
The Bond Buyer's 20-Bond GO Index of 20-year general obligation yields dropped to its lowest level in more than a year as it fell 18 basis points in the week ended Dec. 11 to 3.65% from 3.83% in the previous week. The last time the index was lower was on May 16, 2013, when it stood at 3.61%.
The 11-Bond GO Index of higher-grade 20-year GO yields also lost 18 basis points, to 3.50% from 3.68% the prior week. It is also at its lowest level in over a year - it stood at 3.46% on May 23, 2013.
The Bond Buyer's 25-bond Revenue Bond Index dropped nine basis points to 4.41% from 4.50% the previous week. It is at its lowest level since May 30, 2013 when it was 4.39%.
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 mostly 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.
Retail investors shed muni debt in the latest quarter 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.
Holdings of munis 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.
Christine Albano contributed to this report.
