Prices of top-shelf municipal bonds finished out the week stronger, traders said, as yields continued to fall in the aftermath of the Federal Open Market Committee meeting.Since the FOMC meeting, yields on the 10-year have fallen by 15 basis points while the yield on the 30-year is off by 14 basis points.
Secondary Market
The yield on the 10-year benchmark muni general obligation fell three basis points to 1.94% from 1.97% on Thursday, while the yield on 30-year GO fell one basis point to 2.76% from 2.77%, according to the final read of Municipal Market Data's triple-A scale. In comparison, on the previous Friday the 10-year yield stood at 2.14% and the yield on the 30-year was at 2.94%.
On Wednesday, the FOMC’s monetary policy statement dropped the word “patient,” indicating a possible interest rate increase as early as June. However, Fed Chair Janet Yellen said the action did not mean the Fed was suddenly going to become impatient.
Traders said the market took this to mean that actions speak louder than words -- and that the Fed would act patiently even if that word was no longer in its vocabulary.
Treasury prices closed higher on Friday. The yield on the two-year Treasury note dropped to 0.58% from 0.62% on Thursday, while the 10-year yield declined to 1.93% from 1.97% and the 30-year yield fell to 2.51% from 2.55%.
The 10-year muni to Treasury ratio was calculated at 100.6% on Friday versus 99.8% on Thursday, while the 30-year muni to Treasury ratio stood at 110.2% compared to 109.2%.
The Week's Most Actively Quoted Issues
Chicago, California and Puerto Rico names were among the most actively quoted issues in the week ended March 20, according to data released by Markit.
Among bid-side quotes, the Chicago Board of Education 5s of 2042 were quoted by 10 unique dealers. Among ask-side quotes, the University of California 5s of 2025 were quoted by 17 dealers. And among two-sided quotes, the Puerto Rico 8s of 2035 were quoted by nine dealers, Markit said.
The Week's Most Actively Traded Issues
Among the most actively traded issues in the week ended March 20, were issuers from New York, Kentucky and California, according to Markit.
In the GO bond sector, New York City 5s of 2034 were traded 66 times. In the revenue bond sector, the Kentucky State Municipal Power Agency power system 4s of 2039 were traded 82 times. And in the taxable bond sector, the University of California 4.131s of 2045 were traded 76 times, according to Markit.
Will Puerto Rico Mean More Market Pain?
The
“The possible restructuring of the debt of the larger revenue bond issuers in Puerto Rico makes for a trying time for the Puerto Rico Senate,” Rieger says. “Needed tax reform is hotly debated and probably harder to implement.”
Bond prices in the Puerto Rico index are now averaging 50 cents on the dollar. The low point for the average bond price was on July 8, 2014, when the average price fell to 47.27 cents on the dollar. In comparison, the average price of bonds in the
“Another question weighing on the market is this: How much more underperformance will state funds that own Puerto Rico bonds and the hedge funds that bought Puerto Rico bonds in the downturn tolerate before flooding the market with bonds?,” Rieger said.
While the market may have already adjusted for this situation, he added that Puerto Rico is still a big part of the muni market, with the index tracking more than $70 billion of commonwealth debt.
Primary Market
Muni traders are awaiting the upcoming week’s $8.9 billion of new supply, after seeing a hefty slate of bonds, which was topped off an Hawaiian issuer.
Bank of America Merrill Lynch priced Honolulu’s $866.58 million of 2015 Series A through D tax-exempt general obligation bonds. The bonds were rated Aa1 by Moody’s Investors Service and AA-plus by Fitch Ratings.
Also, Goldman, Sachs priced the Illinois Finance Authority's $286.44 million of Series 2015C revenue refunding bonds for the Silver Cross Hospital and Medical Center. The bonds are rated Baa1 by Moody’s and BBB-plus by Fitch.
Additionally, Citigroup Global Markets priced Oregon's $253.58 million of GOs, issued under Article XI for state projects, in three series. The deal is rated Aa1 by Moody's and AA-plus by both S&P and Fitch.
The largest competitive bond sale of the week was the Douglas County, Omaha Public School District No. 001, Neb.’s $141 million of Series 2015 GOs. The deal was won by J.P. Morgan Securities with a true interest cost of 3.4189%. The bonds were rated Aa1 by Moody’s and triple-A by S&P.
In the competitive note sector, Baltimore Co., Md., sold $200 million of bond anticipation notes. JPMorgan won the BANs with a bid of 0.1884%. The notes were rated MIG-1 by Moody’s, SP-1-plus by S&P and F-1-plus by Fitch.
Tax-Exempt Bond Funds See Inflows
Municipal bond funds which report weekly posted $133.676 million of inflows in the week ended March 18, after experiencing inflows of $152.957 million in the week ended March 11, according to the latest Lipper data. It was the 11th straight week muni funds experienced inflows.
The four-week moving average remained positive at $281.111 million in the latest week after being in the green at $262.454 million in the prior week. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.
Muni bond funds so far have experienced inflows in each week of 2015, according to Lipper data. Inflows for the year total about $5.923 billion.
Long-term muni bond funds saw inflows of $137.153 million in the latest week, after experiencing inflows of $110.328 million in the previous week.
High-yield muni funds recorded an inflow of $90.989 million in the latest reporting week, after seeing outflows of $51.421 million in the previous week. Exchange-traded funds had inflows of $73.093 million, after recording inflows of $75.130 million in the previous week.
In contrast, long-term municipal bond mutual funds posted $278 million of inflows in the week ended March 11, according to the Investment Company Institute. ICI reported that inflows into long-term funds were $675 million in the previous week.
