Prices of top-rated municipal bonds were unchanged at mid-session, traders said, as the market will be looking to wrap 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 remained at 2.32% from Wednesday, while the yield on the 30-year GO was unchanged at 3.30%, according to a read of Municipal Market Data's triple-A scale.
Since May 1, yields on the 10-year muni have risen by 14 basis points, while yields on the 30-year are up by 22 basis points. But this only tells part of the story. Since Jan. 1, yields on the 10-year muni have risen by 31 basis points, while yields on the 30-year are up by 47 basis points.
In historical context, yields on munis are still 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 mixed on Thursday as the yield on the two-year Treasury note was unchanged at 0.58% from Wednesday, while the 10-year yield declined to 2.21% from 2.25% and the 30-year yield fell to 3.01% from 3.05%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 103.1% versus 101.8% on Tuesday, while the 30-year muni to Treasury ratio stood at 108.1% compared to 108.0%, according to MMD.
Barclays Looks at Performance, Volatility
Meanwhile, 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," according to a new report by Barclays Municipal Credit Research. "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 will likely 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.
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 is rated AA-plus by Standard & Poor's, Fitch Ratings and Kroll Bond Rating Agency and carry stable outlooks from the three rating agencies.
Late on Wednesday, Bank of America Merrill Lynch completed the pricing of Atlantic City's $41.705 million of Series 2015A taxable general obligation refunding bonds 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 bonds were 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.
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.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar decreased $304.6 million to $13.53 billion on Thursday. The total is comprised of $6.13 billion competitive sales and $7.39 billion of negotiated deals.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 46,964 trades on Wednesday on volume of $12.870 billion.
The most active bond, based on the number of trades, was the New York City Municipal Water Finance Authority's Fiscal 2015 Series HH water and sewer system second general resolution revenue bonds 3 3/8s of 2030, which traded 306 times at an average price of 98.139 with an average yield of 3.52%. The bonds were initially priced at 98.201 to yield 3.52%.
