Yields on top-rated municipal bonds finished as much as seven basis points higher on Thursday, traders said, as prices of U.S. Treasury bonds swooned ahead of Friday's employment report.
The yield on the 10-year benchmark muni general obligation rose five basis points to 2.02% from 1.97% on Wednesday, while the 30-year yield was seven basis points higher at 2.97% from 2.90%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were lower after Federal Reserve Chair Janet Yellen gave a fairly upbeat outlook for the economy and ahead of the November jobs report due out on Friday.
According to economists polled by Bloomberg, non-farm payrolls are estimated to have risen by 190,000 in November. Most analysts expect that if the number comes in close to expectations, which range from gains of 160,000 to 219,000, then the Fed will move to raise interest rates when they meet Dec. 15-16.
The two-year Treasury yield rose to 0.98% from 0.99% on Wednesday while the 10-year Treasury yield was higher at 2.33% from 2.18% and the 30-year increased to 3.07% from 2.91%.
The 10-year muni to Treasury ratio was calculated on Thursday at 86.9% from 90.4% on Wednesday, while the 30-year muni to Treasury ratio stood at 96.8% compared to 99.8%, according to MMD.
S&P: Still Lots Risk for Puerto Rico
Standard & Poor's said on Thursday that Puerto Rico general obligation debt (CC/Negative) continues to remain highly vulnerable to default, despite payment in full by the Government Development Bank for Puerto Rico of $354 million in scheduled debt service on Dec. 1.
"Even if Puerto Rico prioritizes its $331 million GO interest payment due on Jan. 1, 2016, at the expense of other bondholders, this diversion of revenue pledged to other bonds would merely postpone an eventual GO debt default because GO debt service payments due July 1, 2016, and afterwards remain at risk due to the likely continued deterioration in the Commonwealth's cash position over time," S&P said in a press release.
In secondary trading, Puerto Rico GOs were little changed on Thursday, though they were off recent lows, according to data from the Municipal Securities Rulemaking Board. The benchmark Commonwealth Series 2014A GO 8s of 2035 were trading at a high price of 75.75 cents on the dollar, a low yield of 11.05%, on volume of $8.5 million, according to the MSRB's EMMA website.
On Wednesday, the 8s traded at a high price of 75.75 cents on the dollar, a low yield of 11.05%, on volume of $72.2 million, and on Tuesday the 8s traded at a high price of 75.725, a low yield of 11.053%. In comparison, the 8s of 2035 traded on Monday at a high price of 72.375 cents on the dollar, or a low yield of 11.598%, on volume of $1.16 million.
"While the Puerto Rico municipal bond market saga continues, the damage it has done has been significant," J.R. Rieger, Global Head of Fixed Income at S&P Dow Jones Indices, said in a statement on Thursday.
"Puerto Rico municipal bonds represent approximately 23% of the market value of the
The S&P Muni Bond High Yield Index has a year to date return of 2.36% while "high yield municipal bonds have actually had an excellent year in total return of over 6% -- that is when you exclude Puerto Rico exposure," he said.
Primary Market
In the primary, issuance dwindled down to a last few sales on Thursday, as most of the week's issuance was priced on Tuesday and Wednesday.
The Florida Department of Environmental Protection competitively sold $80.77 million of Florida Forever Series 2015A revenue refunding bonds.
Bank of America Merrill Lynch won the bonds with a true interest cost of 1.98%. The issue was priced as 5s to yield from 0.70% in 2017 to 2.39% in 2026.
The deal was rated Aa3 by Moody's Investors Service and AA-minus by both Standard and Poor's and Fitch Ratings.
SIFMA Says It's Looking at Infrastructure Issuance
The Securities Industry and Financial Markets Association held its 2016 state of the Industry media briefing on Thursday.
John F.W. Rogers, SIFMA Chair and EVP at Goldman Sachs, said the topic of infrastructure bonds was one that the group would be looking at closely in the coming year.
"It's a high priority for us," he said, adding the lack of bonds being issued for infrastructure projects in the United States is of great concern to SIFMA.
SIFMA also said municipal issuers "raised over $334 billion in 2014 to finance important community infrastructure projects, including schools, airports and bridges."
The American Society of Civil Engineers has estimated the U.S. needs to spend about $3.6 trillion on infrastructure investment by 2020.
According to the newly released SIFMA 2015 Fact Book, there were 7,332 unique issuers who were responsible for a total of 11,039 of bond issues in 2014, a slight dip from 7,653 unique issuers who were responsible for a total of 11,474 of bond issues in 2013, according to Thomson Reuters' data.
Through the third quarter of this year, more than "$316 billion of municipal bonds have been issued, a rise of 36%," according to Kenneth E. Bentsen Jr., SIFMA President and CEO. This was well above the 10-year average of $271.2 billion.
Tax-Exempt Money Market Funds Post Outflows
Tax-exempt money market funds experienced inflows of $617.9 million, bringing total net assets to $246.29 billion in the period ended Dec. 1, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $114.4 million to $245.68 billion in the previous week.
The average, seven-day simple yield for the 373 weekly reporting tax-exempt funds remained at 0.01% for the 135th straight week.
The total net assets of the 952 weekly reporting taxable money funds rose $2.65 billion to $2.504 trillion in the period ended Dec. 1, after an inflow of $2.26 billion to $2.506 trillion the previous week.
The average, seven-day simple yield for the taxable money funds remained at 0.02% for the 46th week in a row.
Overall, the combined total net assets of the 1,325 weekly reporting money funds decreased $2.03 billion to $2.750 trillion in the period ended Dec. 1, which followed an inflow of $2.15 billion to $2.752 trillion the week before.
