Municipal bond yields jumped higher Thursday following Treasuries, as all three major stock indexes surged to a record close.
"It was not a good day to be trading in the secondary, that's for sure," a Pennsylvania trader said. "Govies gave way to the U.S.-China trade talks nearing approval in Phase 1 and secondary munis fell victim to heavy supply still cycling through final pricings and allotments."
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10- and 30-year GO increased seven basis points to 1.59% and 2.20%, respectively.
The 10-year muni-to-Treasury ratio was calculated at 82.6% while the 30-year muni-to-Treasury ratio stood at 91.6%, according to MMD.
At one stage, the 10-year Treasury yield was up as much as 14 basis points, its biggest daily rise since 2016. The yield hit 1.97%, before slipping to around 1.92% in late trade. The Treasury 30-year yield hit a three-month high after Treasury sold $19 billion of 30-year bonds. It was at 2.40% in late trade.
The Treasury three-month was up and yielding 1.564%, the two-year was up and yielding 1.681%, the five-year was up and yielding 1.744%, the 10-year was up and yielding 1.925% and the 30-year was up and yielding 2.404%.
Meanwhile, the market saw 44 consecutive weeks of inflows after Lipper reported $1.103 billion of cash coming in the latest week.
There was little chance to show performance, traders said, with such a large UST reaction, though next week’s calendar "appears to be more manageable and should help this week’s balances find some distribution."
The last issuance of the busiest week of the year so far came on Thursday. Some analysts say that they hope investors enjoyed the strong streak of supply, as they predict it will start to slow down.
Muni volume was unimpressive to start the year, but picked up when
Meanwhile, given last week’s 25 basis point cut in the funds rate, the taxable advance refunding environment should entice additional issuers to access the muni market for a while longer, according to Jeffrey Lipton, managing director and head of municipal research and strategy at Oppenheimer. He is also calling for a drop off in supply through November and December.
“There has been a material increase in taxable issuance for not only new-money purposes, but to also advance refund tax-exempt debt ahead of the first optional call date,” Lipton said. Now that the cost-savings math works in the issuer’s favor and there is a clear advantage to enter the market now as opposed to waiting until a tax-exempt current refunding can be sold within the 90-day window before the first call.”
He added that even with the heavier issuance, the pace of fund flows remains largely unabated much to his surprise and ratios avoided potentially higher levels, which again speaks to the solid demand profile.
Both ICI and Lipper have reported 44 weeks in a row of inflows.
Lipton said that if his thoughts on remaining volume for the year prove correct, there is potential for munis to outperform UST. He noted that one critical piece to the investment narrative is the willingness to deploy available cash against a backdrop of market uncertainty weighted down by geopolitical events.
“Between now and year-end, muni fund flows should stay the course given our technical expectations and we will be closely following ratio movements with the hopes of identifying opportunities,” he said. “Current M/T relationships may reflect appropriate entry if ratios move lower to richer levels, a probable scenario if technicals grow stronger.”
Primary market
JPMorgan priced the Central Florida Expressway Authority’s (A1/A+/A+) $573.660 million of senior lien revenue bonds.
RBC Capital Markets priced the Tennessee Housing Development Agency’s (Aa1/AA+/ ) $200 million residential program bonds.
Barclays priced the Municipal Electric Authority of Georgia’s (A2/A-/BBB+) $252.67 million of subordinated bonds.
Thursday’s bond sales
Bond Buyer yield indexes move higher
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, rose to 3.62% from 3.62% in the week ended Nov. 7.
The Bond Buyer's 20-bond GO Index of 20-year general obligation yields increased to 2.86% from 2.79% from the week before.
The 11-bond GO Index of higher-grade 11-year GOs gained to 2.40% from 2.33% the prior week.
The Bond Buyer's Revenue Bond Index rose to 3.34% from 3.27% last week.
The yield on the U.S. Treasury's 10-year note rose 23 basis points to 1.92% from 1.69% the week before, while the yield on the 30-year Treasury increased 22 basis points to 2.40% from 2.18%.
Muni money market funds see inflow
Tax-exempt municipal money market fund assets grew $422.7 million, raising its total net assets to $138.49 billion in the week ended Nov. 4, according to the Money Fund Report, a publication of Informa Financial Intelligence.
The average seven-day simple yield for the 188 tax-free and municipal money-market funds fell to 0.78% from 0.82% from the previous week.
Taxable money-fund assets were up $35.38 billion in the week ended Nov. 5, bringing total net assets to $3.366 trillion. The average, seven-day simple yield for the 806 taxable reporting funds was slipped to 1.40% from 1.50% from the prior week.
Overall, the combined total net assets of the 994 reporting money funds increased $35.80 billion to $3.504 trillion in the week ended Nov. 5.
Secondary market
Munis were weaker on the MBIS benchmark scale, with yields rising by less than two basis points in the 10-year maturity and by two basis points in the 30-year maturity. High-grades were also weaker, with yields on MBIS AAA scale rising by two basis points in the 10-year maturity and by three basis points in the 30-year maturity.
Previous session's activity
The MSRB reported 33,813 trades Wednesday on volume of $12.84 billion. The 30-day average trade summary showed on a par amount basis of $10.56 million that customers bought $5.87 million, customers sold $2.85 million and interdealer trades totaled $1.84 million.
California, New York and Texas were most traded, with the Golden State taking 13.284% of the market, the Empire State taking 12.296% and the Lone Star State taking 10.873%.
The most actively traded securities were The Connector 200 Association Southern Connector Project, S.C., zeros of 2051 traded 14 times on volume of $52.04 million.
Treasury action
The Treasury Department Thursday auctioned $19 billion of 30-year bonds with a 2 3/8% coupon at a 2.430% high yield, a price of 98.833264. The bid-to-cover ratio was 2.23. Tenders at the high yield were allotted 51.75%.
The median yield was 2.375%. The low yield was 1.750%.
Treasury also auctioned $55 billion of four-week bills at a 1.535% high yield, a price of 99.880611. The coupon equivalent was 1.535%. The bid-to-cover ratio was 2.65. Tenders at the high rate were allotted 81.05%. The median rate was 1.510%. The low rate was 1.480%.
Treasury also auctioned $40 billion of eight-week bills at a 1.530% high yield, a price of 99.762000. The coupon equivalent was 1.559%. The bid-to-cover ratio was 2.81. Tenders at the high rate were allotted 71.47%. The median rate was 1.505%. The low rate was 1.480%.
Treasury also said it will auction $45 billion 91-day bills and $42 billion 182-day discount bills Tuesday. The 91s settle Nov. 14, and are due Feb. 13, 2020, and the 182s settle Nov. 14, and are due May 14, 2020. Currently, there are $42.003 billion 91-days outstanding and no 182s.
Gary E. 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.
