Municipal bonds strengthen amid stock market volatility

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Municipal bonds were stronger on Thursday, according to a late read of the MBIS benchmark scale, as volatility in the stock market drove a flight to quality from equities into bonds.

Benchmark muni yields fell as much as three basis points in the one- to 30-year maturities. High-grade munis were also stronger with yields on MBIS’ AAA scale falling by as much as three basis points all across the curve.

Traders were talking Thursday about how lower yields on primary market issues helped support demand.

“The market seems strong today,” said a New York municipal manager, who pointed to the New York Dormitory Authority deal for New York University, which was bumped up in price but still saw good demand.

He said that deal demonstrated the tone of the market as of Thursday afternoon as yields fell as much as three basis points in the secondary market earlier in the day.

Municipals were also stronger according to Municipal Market Data’s AAA benchmark scale, which showed yields falling four basis points in the 10-year general obligation muni and dropping six basis points in the 30-year muni maturity.

Treasury bonds were stronger too, as stocks turned mixed after starting the day sharply lower.

On Thursday, the 10-year muni-to-Treasury ratio was calculated at 83.3% while the 30-year muni-to-Treasury ratio stood at 96.2%, according to MMD.

“Supply seems relatively light and while not speaking for others, the reaction to the NYU deal would imply strong demand,” a senior managing director of municipals at a New York firm said on Thursday afternoon.

“Last winter, due to the changes from the Tax Reform Act, with all the advance refunding excess supply in the last six to eight weeks of the year, there wasn't the usual December/January effect where reinvesting interest and principal payments dominated the market.” He said that “perhaps, given the calendar, people are already thinking about the June/July maturity and interest cycle.”

He said it appears the Fed's moves have already been accepted by the market.

“The Treasury bellwether 10-year note started January at 2.42%,” and today was at about 2.95%. “I wouldn't say that concerns are lifted, but rather, understood,” he added.

Demand for munis remains high
Demand for tax-exempt income remains solid, particularly from high-taxed states, while supply remains muted, according to John Donaldson, director of fixed income at the Haverford Trust Co.

“The municipal market continues to feel the impact from so much of the new issue supply being rushed into the fourth quarter of 2017,” he said in an interview. “We continue to see better value from new issue pricing as there is little selling pressure in the secondary market.”

He said ratios returning to historic levels is keeping municipals from the volatility being experienced in other markets.

A recent development has been more attractive yields in the front end of the curve as munis have started to catch up to the rise in Treasury bill and London Interbank Offered Rate yields, he noted.

“For several weeks, taxable bonds had been more attractive on an after-tax basis,” Donaldson said. “That relationship has adjusted back closer to historical norms. Investor sentiment is OK, maybe because munis are less correlated to the equity markets and therefore somewhat removed from that volatility in recent weeks.”

Primary market
Wells Fargo Securities priced the Dormitory Authority of the State of New York’s $618.465 million of Series 2018A tax-exempt and Series 2018B taxable revenue bonds for New York University.

The deal is rated Aa2 by Moody’s Investors Service and AA-minus by S&P Global Ratings.

JPMorgan Securities priced the Southern California Public Power Authority’s $228.915 million of refunding revenue bonds.

The deal is rated Aa3 by Moody’s

Barclays Capital priced the Norfolk Economic Development Authority, Va.’s $150 million of Series 2018 hospital facilities revenue refunding bonds for Sentara Healthcare.

The deal is rated Aa2 by Moody’s and AA by S&P.

In the competitive arena, Milwaukee sold $170.845 million of general obligation promissory notes consisting of $163.795 million of Series 2018N4 and B5 tax-exempts and $7.05 million of Series 2018 T6 and T7 taxables.

JPMorgan won the tax-exempts with a true interest cost of 2.699%. Robert W. Baird won the taxables with a TIC of 3.5387%

The deals are rated AA by S&P and Fitch Ratings.

Milwaukee also sold $110 million of Series 2018 R3 revenue anticipation notes.

Barclays and JPMorgan won the notes with TICs of 1.8258% and 1.8298%, respectively.

The RANs are rated SP1-plus by S&P and F1-plus by Fitch.

Thursday’s bond sales

New York:
Click here for the DASNY $249.28M tax-exempt repricing

Click here for the DASNY $326M tax-exempt deal

Click here for the DASNY $269.185M taxable pricing

Click here for the Southern California Public Power Authority deal

Click here for the $164M Milwaukee deal

Click here for the $110M Milwaukee deal

Click here for the Northfolk EDA deal

Previous session's activity
The Municipal Securities Rulemaking Board reported 47,887 trades on Wednesday on volume of $16.35 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 18.541% of the market, the Empire State taking 15.681% and the Lone Star State taking 8.757%

Tax-exempt money market funds saw inflows
Tax-exempt money market funds experienced inflows of $981.2 million, raising their total net assets to $131.72 billion in the week ended May 1, according to The Money Fund Report, a service of This followed an outflow of $682.1 million on to $130.74 billion in the previous week.
The average, seven-day simple yield for the 202 weekly reporting tax-exempt funds fell to 1.22% from 1.26% the previous week.

The total net assets of the 830 weekly reporting taxable money funds grew to $3.57 billion to $2.637 trillion in the week ended April 30, after an inflow of $22.7 million to $2.634 trillion the week before.

The average, seven-day simple yield for the taxable money funds increased to 1.35% from 1.33% from the prior week.
Overall, the combined total net assets of the 1,032 weekly reporting money funds increased $4.55 billion to $2.769 trillion in the week ended April 30, after outflows of $659.4 million to $2.764 trillion in the prior week.

ICI: Long-term muni funds see $60M outflow
Long-term municipal bond funds saw an outflow of $60 million in the week ended April 25, the Investment Company Institute reported on Wednesday.

This followed an outflow of $830 million out of the tax-exempt mutual funds in the week ended April 18 and outflows of $696 million and $110 million in the two prior weeks.

Taxable bond funds saw an estimated inflow of $2.34 billion in the latest reporting week, after seeing an inflow of $9.32 billion in the previous week.

ICI said the total estimated inflows to long-term mutual funds and exchange-traded funds were $1.28 billion for the week ended April 25 after inflows of $7.32 billion in the prior week.

Treasury announces auction details
The Treasury Department announced these auctions:

  • $42 billion of 182-day bills selling on May 7; and
  • $48 billion of 91-day bills selling on May 7.

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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Primary bond market Higher education bonds Secondary bond market Municipal bond funds State of California Southern California Public Power Authority City of Norfolk, VA City of Milwaukee, WI State of Texas State of New York New York State Dormitory Authority