Munis were little changed on Wednesday after the release of the consumer price index report, as U.S. Treasuries were narrowly mixed and equities ended higher.
Muni yields were up to one basis point firmer, depending on the scale. USTs saw small gains on the front end and small losses out long.
The CPI data was roughly in line with the market's expectations, so its impact on munis was likely "benign," NewSquare Capital's Kim Olsan said. The muni market has enough big unknowns that even a very favorable report might not have had much weight, Olsan said — "there probably wasn't much rally room."
"The next [Federal Open Market Committee] meeting is ... roughly a month out. There's another set of data that will come in between inflation and employment," Olsan said. "So, I expect back-and-forth activity in govies, and I think munis will probably just hold the trading range that we've seen over the last week or two."
ICI Data
The Investment Company Institute Wednesday reported outflows of $41 million for the week ending Aug. 5, following $405 million of inflows the previous week. This breaks a 15-week streak of inflows; it's also the fifth consecutive week of declining fund flows.
Exchange-traded funds saw inflows of $1.533 billion after $1.828 billion of inflows the week prior, per ICI data.
New-issue market
In the primary market Wednesday, BofA Securities priced for Honolulu, Hawaii, (/AA+/AA+/) $196.02 million of GO bonds. The first tranche, $89.15 million of Series 2026A bonds, saw 5s of 7/2028 at 2.58%, 5s of 2031 at 2.86%, 5s of 2036 at 3.39%, 5s of 2041 at 3.92%, 5s of 2046 at 4.20% and 5s of 2051 at 4.50%, callable 7/2036.
The second tranche, $18.59 million of Series 2026B bonds, saw 5s of 7/2027 at 2.47%, 5s of 2031 at 2.86% and 5s of 2034 at 3.17%, noncall.
The third tranche, $9.39 million of Series 2026C Honolulu Rail Transit Project bonds, saw 5s of 7/2028 at 2.58%, 5s of 2031 at 2.86%, 5s of 2036 at 3.39%, 4s of 2041 at 4.12%, 4.25s of 2046 at 4.41% and 5s of 2051 at 4.50%, callable 7/2036.
The fourth tranche, $1.42 million of refunding Series 2026D bonds, saw 5s of 1/2027 at 2.49%, noncall.
The fifth tranche, $2 million of refunding Series 2026E bonds, saw 5s of 7/2029 at 2.67% and 5s of 2030 at 2.77%, noncall.
The sixth tranche, $61.37 million of refunding Series 2026F bonds, saw 5s of 7/2031 at 2.86% and 5s of 7/2036 at 3.39%, noncall.
The seventh tranche, $14.12 million of refunding Series 2026G bonds, saw 5s of 7/2029 at 2.67%, 5s of 2031 at 2.86% and 5s of 2034 at 3.17%, noncall.
In the competitive market, Sarpy County, Nebraska, (Aaa///) sold $200 million of limited tax highway allocation fund pledge bonds to BofA Securities, with 5s of 6/2029 at 2.61%, 5s of 2031 at 2.76%, 5s of 2036 at 3.32%, 5s of 2041 at 3.87% and 4s of 2046 at 4.30%, callable 6/2036.
More on CPI data
The CPI "came in largely as expected for July, painting a tamer picture of consumer price pressures for a second month in a row," said Scott Anderson, chief U.S. economist at BMO.
"The cool down in consumer inflation over the last two months, along with the weaker than expected payroll report for July, should give the [Federal Market Committee meeting] some more breathing space to maintain the current policy rate at the September policy meeting, though we will get one more CPI report for August before the Fed has to make its decision," he said.
"One down, one to go. With another round of inflation data due before the September FOMC meeting, it remains all to play for, but today's in-line report was a good start. Contained core inflation adds to the encouraging signs in last month's release of a moderation in underlying inflation, helping strengthen the case for a September hold," said Lindsay Rosner, head of multi- sector fixed income investing at Goldman Sachs Asset Management.
Chances of a rate hike at the September meeting have dropped to 39% from a 50% chance on Tuesday, according to Anderson.
The CPI report, which was "fairly moderate," is what the Fed wants to see, said Luke Rahbari, CEO of Equity Armor Investments.
"The combination of negative month-over-month headline CPI and core inflation holding around 2.6% gives the Fed the narrative it wants: we're seeing some cooling, but there is no collapse in the economy," he said. "Prices in some areas are stabilizing and, in some cases, coming down."
However, there have been "starts and stops" with the war in the Middle East, as well as volatile swings in oil and gasoline prices, that things could change day to day, Rahbari said.
"But for now, these backward-looking numbers put the Fed in exactly the position it wants to be in," he said. "[The Fed] doesn't have to do anything."
