On the last full trading day of the week, prices of top-shelf municipal bonds finished higher, traders said, with yields on some maturities falling by as much as two basis points.
The market on Thursday was already wrapping things up ahead of Friday's early market close and the full close on Monday for Memorial Day.
Secondary Market
The yield on the 10-year benchmark muni general obligation fell two basis points to 2.30% from 2.32% from Wednesday, while the yield on the 30-year GO was down two basis points to 3.28% from 3.30%, according to the final read of Municipal Market Data's triple-A scale.
Since May 1, yields on the 10-year muni have risen by 12 basis points, while yields on the 30-year are up by 20 basis points. But this only tells part of the story. Since Jan. 1, yields on the 10-year muni have risen by 30 basis points, while yields on the 30-year are up by 45 basis points.
Still, in a historical context yields on munis are trading at fairly low levels. On May 21, 2010, the 10-year was at 2.82% while the 30-year was at 3.96%; on May 20, 2005 the 10-year stood at 3.51% while the 30-year was at 4.31%.
Treasury prices were also higher on Thursday as the yield on the two-year Treasury note decreased to 0.57% from 0.58% from Wednesday, while the 10-year yield declined to 2.18% from 2.25% and the 30-year yield dropped to 2.98% from 3.05%.
The 10-year muni to Treasury ratio was calculated on Thursday at 105.2% versus 103.1% on Wednesday, while the 30-year muni to Treasury ratio stood at 110.2% compared to 108.1%, according to MMD.
Primary Market
Siebert Brandford Shank priced Los Angeles' $231.44 million of wastewater system revenue bonds.
The $188.7 million Series 2015A green bonds were priced as 5s to yield from 2.82% in 2027 h 3.38% in 2035; a 2044 term bond was priced as 5s to yield 3.59% and a 2045 term was priced as 4s to yield 4.02%. The $42.74 million Series 2015B refunding bonds were priced to yield from 3.05% with a 5% coupon in 2029 to 3.38% with a 5% coupon in 2035.
The issue was rated AA-plus by Standard & Poor's, Fitch Ratings and Kroll Bond Rating Agency and carry stable outlooks from the three rating agencies.
Loop Capital Markets got the official award on Connecticut's $380.75 million of general obligation and GO refunding bonds. The issue was rated Aa3 by Moody's and AA by S&P, Fitch, and Kroll.
The $200 million of Series 2015C SIFMA-indexed GOs were priced at par to yield 70 basis points over SIFMA in 2017, 75 basis points over SIFMA in 2018 and from 80 basis points over SIFMA in 2020 to 125 basis points over SIFMA in 2024. The $180.75 million of Series 2015D SIFMA-indexed refunding GOs were priced at par to yield eight basis points over SIFMA in 2016, 70 basis points over SIFMA in 2017, 75 basis points over SIFMA in 2018, 90 basis points over SIFMA in 2021, and 105 basis points over SIFMA in 2022.
Bank of America Merrill Lynch received the written award on Atlantic City's $41.705 million of Series 2015A taxable general obligation refunding bonds.
The bonds were issued under the State of New Jersey's Municipal Qualified Bond Act, which is intended to facilitate distressed municipal issuers' access to the capital markets.
The issue was priced as 7s to yield 7.25% in 2028 and as 7 1/2s to yield 7.75% in 2040. The deal was rated A-minus by S&P, which also assigns a stable outlook.
Barclays Looks at Performance, Volatility
Barclays says that 2015 has been a difficult year, and it doesn't see conditions improving in the short-term.
"We would not be surprised by near-term volatility and will be carefully monitoring fund flows, which have turned negative over the past several weeks," Barclays Municipal Credit Research said in a report Thursday. "However, even in the worst-case scenario, we do not foresee a full-blown repeat of the 'taper tantrum' of 2013, since institutional investors were able to amass substantial cash cushions, summer redemptions are large, and retail investors are getting interested again as rates have moved higher."
However, the firm sees some light at the end of the tunnel by the end of 2015.
"While we are cautious near-term, we believe that munis should outperform Treasuries by the end of the year, with 10-year ratios falling to 94%-96% and 30-year ratios to 101%-103%. However, rising rates should erode muni total return performance this year. We expect the muni index to return only 2.3% in 2015 and would not be surprised if returns are actually lower or even negative."
Aberdeen Sees Rate Hike Likely Pushed into 2016
Minutes from the Federal Open Market Committee's April meeting showed the chances of a June interest rate increase appear to be slim to none. Only a few Federal Reserve members expect that upcoming economic data will get better enough to warrant a rate hike increase at the FOMC's June meeting, according to the minutes released Wednesday.
Many participants said it was unlikely that the data through June would "provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility," the Fed said.
Aberdeen Asset Management believes any rate hike is likely to be pushed off into next year.
"The U.S. Federal Reserve's statement seemed like old news. The Fed continues to 'push out' the expected lift off date to increase the Fed Funds rate," said Patrick Maldari, senior fixed income specialist at Aberdeen. "The Fed desperately wants to raise rates, but the most recent weak economic data for Q1 and the somewhat soft start to Q2 is causing the Hawks at the Fed to reconsider if the Fed should move at all in 2015."
In the end, it looks like later rather than sooner for any rise in rates, according to the company.
"In our view, it seems that the disappointing start to 2015 and the benign inflation backdrop will likely push the first move back until 2016," he said.
Tax-Exempt Money Market Funds Post Outflow
Tax-exempt money market funds experienced inflows of $842.5 million, bringing total net assets to $245.36 billion in the period ended May 18, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $1.32 billion to $244.53 billion in the previous week.
The average, seven-day simple yield for the 395 weekly reporting tax-exempt funds remained at 0.01% for a 107th straight week.
The total net assets of the 995 weekly reporting taxable money funds rose $16.58 billion to $2.393 trillion in the period ended May 19, after experiencing an outflow of $6.99 billion to $2.376 trillion in the prior week.
The average, seven-day simple yield for the taxable money funds remained at 0.02% for the 16th consecutive week.
Overall, the combined total net assets of the 1,388 weekly reporting money funds increased $17.42 billion to $2.638 trillion in the period ended May 19, which followed an outflow of $8.32 billion to $2.621 trillion in the prior period.
