Municipal bonds continued to rally the past week, with U.S. economic data suggesting a slow recovery just as mutual funds showed renewed investor interest in tax-exempt bonds.
A scarcity of bonds in the primary market further improved yields, as traders looked to buy up attractive paper during a week of moderate new issuance. Sales totaled $3.8 billion, according to Thomson Reuters.
"There's not a lot of product out there and there's always good business in January," a New York-based trader said in an interview. "It seems like people are getting frustrated with not finding bonds at the level they're looking for."
Inflation data and unemployment numbers released by the government showed very little change from the previous month, with a steady consumer price index and minimally improved jobless claims on Thursday.
The core consumer price index, a measure of inflation, was unchanged in December from November, remaining 1.7% higher than a year earlier. The small change means the Federal Reserve may be encouraged to keep interest rates low.
"Inflation data has been benign and from my perspective we'll be looking at outflows," a Florida-based trader said.
Inflows of money to municipal bond mutual funds also pointed to stronger demand in the municipal space, traders said, after Lipper FMI numbers showed the end of a 33-week string of outflows.
Yields on bonds measured by Municipal Market Data were lower, with the 10-year benchmark yield down by five basis points and the thirty-year declining by ten basis points from the previous week.
Municipals beat treasuries by a narrow marginin the past week, with the Bond Buyer Municipal Bond Index and 20-Bond GO Index declining 12 and 13 basis points, respectively. The yield on the U.S. Treasury's 10-year note dropped 11 basis points in the week ending Jan. 16, while the 30-year fell by nine basis points.
The biggest deal was $855 million of New York City Transitional Finance Authority bonds led by JP Morgan Securities LLC. Institutional pricing for the bonds was held Thursday, broken into $505 million of tax-exempt subordinate bonds and $350 million of tax-exempt subordinate refunding bonds.
Yields on the first series of bonds ranged from 0.51% with a 5% coupon maturing in 2016 to 4.3% with a 5% coupon in 2040. Bonds maturing in 2015 were offered in a sealed bid.
Yields on the second series of bonds ranged from 0.51% with a 3% coupon maturing in 2016 to 3.92% with a 3.75% coupon in 2030. Bonds maturing in 2014 and 2015 were offered in a sealed bid. Both series of bonds are callable at par in 2024.
