Activity remained quiet and investors were dormant Thursday afternoon, wrapping up a busy week of snapping up large new issues in New York and California .

The mood was a stark comparison to earlier in the week when there was brisk activity and all the larger new issues were well received, according to a New York trader, especially on the short end of the yield curve.

“There was decent support," he said. "Right now net redemptions and bond calls continue to be a positive. With the curve flattening a lot of money is parked in five years,” he continued. “Even though it’s the most expensive part of the yield curve, people want safety.”

The tone of the market turned lackluster near the close of trading on Thursday, the trader said.

“The bid lists have quieted down from yesterday, next week is a non-week, and right now the forward calendar is less than $4 billion, which is the lowest supply number we have seen in a while,” he said.

He said that figure could drop further next week, when new issue activity is expected to all but come to screeching halt due to the July 4th holiday.

At the same time, the arrival of quarter end is also putting a damper on the market and investor behavior.

“There’s not a lot of activity,” he said. “It’s month end and a lot of people just want to keep everything where it is and be judicious and relaxed. They are not adding any risk when you have a day left in the quarter.”

Bid wanted lists were getting little if any activity, a consequence of the quarter's end and the holiday lull, rather than any liquidity issues. “Next week is a dead week and most firms will be half staffed,” as investors wait to return to a fresh market after the holiday, he said.

Secondary market
Municipal bonds were mostly stronger on Thursday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the three- to seven-year and 10- to 30-year maturities and rose as much as one basis point in the one- and two-year and eight- and nine-year maturities.

High-grade munis were mostly stronger with yields calculated on MBIS’ AAA scale falling as much as one basis point in the four- to 30-year maturities and rising as much as two basis points in the one- to three-year maturities.

Municipals were mixed on Municipal Market Data’s AAA benchmark scale, which showed yields steady in the 10-year muni general obligation and falling one basis point in the 30-year muni maturity.

Treasury bonds were little changed as stock prices turned higher.

On Thursday, the 10-year muni-to-Treasury ratio was calculated at 86.8% while the 30-year muni-to-Treasury ratio stood at 98.8%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.

While the primary market was virtually nonexistent on Thursday morning, the municipal market began strong and steady as New York paper continued to be in high demand in front of the July 1 redemption date, according to a New York trader.

“The calendar looks like nil, but the market’s strong,” he said. “You have the reinvestment period going on, equities are getting hurt, the tariff question is still in the air, and we are in a narrow trading range.”

“It’s a holiday week coming up and definitely July reinvestments are driving demand, so the market is strong without a lot of paper,” the trader said. “In New York it’s very competitive between three and 20 years.”

Overall, the market has been up and down in recent weeks and investors have been reacting accordingly.

“As rates drop people get more bullish and as rates rise people get more bearish,” the trader said.

Retail investors are flush with cash, he said, and while they are interested in paper in the new issue and secondary markets, they are being selective.

Previous session's activity
The Municipal Securities Rulemaking Board reported 43,047 trades on Wednesday on volume of $15.64 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 17.341% of the market, the Empire State taking 13.912% and the Lone Star State taking 11.908%.

Tax-exempt money market funds saw outflows
Tax-exempt money market funds saw outflows of $648.9 million, lowering total net assets to $135.41 billion in the week ended June 25, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $1.63 billion to $136.06 billion in the prior week.

The average, seven-day simple yield for the 202 weekly reporting tax-exempt funds rose to 0.99% from 0.84% the previous week.

The total net assets of the 831 weekly reporting taxable money funds rose $26.07 billion to $2.652 trillion in the week ended June 26, after an outflow of $63.62 billion to $2.626 trillion the week before.

The average, seven-day simple yield for the taxable money funds increased to 1.51% from 1.49% from the prior week.

Overall, the combined total net assets of the 1,033 weekly reporting money funds rose $25.42 billion to $2.788 trillion in the week ended June 26, after outflows of $65.25 billion to $2.762 trillion in the prior week.

ICI: Long-term muni funds see $742M inflow
Long-term municipal bond funds saw an inflow of $742 million in the week ended June 20, the Investment Company Institute reported.

This followed an inflow of $326 million into the tax-exempt mutual funds in the week ended June 13 and inflows of $648 million, $661 million, $185 million and $450 million in the four prior weeks.

Taxable bond funds saw an estimated inflow of $3.81 billion in the latest reporting week, after seeing an inflow of $5.24 billion in the previous week.

ICI said the total estimated outflows to long-term mutual funds and exchange-traded funds were $1.72 billion for the week ended June 20 after inflows of $9.95 billion in the prior week.

Primary market
There were no major deals on the calendar for Thursday.

Treasury announces auction details
The Treasury Department announced these auctions:

  • $42 billion of 182-day bills selling on July 2;
  • $48 billion of 91-day bills selling on July 2; and
  • $35 billion of 28-day bills selling on July 2.

Treasury sells $30B 7-year notes
The Treasury Department Thursday auctioned $30 billion of seven-year notes, with a 2 3/4% coupon and a 2.809% high yield, a price of 99.627486. The bid-to-cover ratio was 2.53.

Tenders at the high yield were allotted 67.56%. All competitive tenders at lower yields were accepted in full. The median yield was 2.770%. The low yield was 2.700%.

Gary Siegel contributed to this report.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.

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