Munis End Lower for Third Week on Supply, Outflows

The municipal bond market headed lower for the third straight week as yields rose on new supply flooding the market, a 26th consecutive outflow from bond funds, and a softer Treasury market.

Several large deals priced this week, including $1.78 billion of Jefferson County, Ala., sewer bonds and $1.5 billion of Port Authority of New York and New Jersey bonds, which pushed the market lower on soft demand. Outflows from municipal bond mutual funds totaled $770 million to extend weekly redemptions to half a year, according to Lipper FMI. Muni yields followed Treasury yields higher after the Federal Open Market Committee meeting minutes released on Wednesday showed the Fed may taper its $85 billion-a-month bond purchasing program in the coming months.

"The market is uncertain with a number of weaker credit quality issuers coming to market this week," said Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management. "Higher quality credit has held in much better."

Most traders said the Jefferson County deal got a mixed reception, with the senior lien bonds insured by Assured Guaranty Municipal Corp. performing better than the subordinate lien debt. The County said more than 200 investors participated with an all-in borrowing cost of 6.96%.

Muni Week in Review: November 22, 2013

In the secondary market, yields rose for the week. The 10-year triple-A Municipal Market Data yield increased five basis points through Thursday to 2.66% and the 30-year yield rose three basis points to 4.16%.

The 10-year triple-A Municipal Market Advisors yield increased three basis points to 2.72% and the 30-year yield rose four basis points to 4.37%.

Heckman described secondary trading as "decent," though the strength in the market earlier in the week faded on Wednesday and Thursday. "There was not a lot of secondary size or issuers. It's been difficult to trade in the last few weeks."

The muni market could see more support in the coming weeks as leftover balances from deals is light, Heckman said. "We have an orderly market but it will trade pretty much in line with where Treasuries are headed. So if the 10-year continues to weaken with a steeper yield curve, munis could follow between now and the taper decision."

This week, the FOMC minutes showed members agreed asset purchases could be decreased "in coming months" as long as data shows "ongoing improvement in labor market conditions."

The 20-Bond GO Index of 20-year general obligation yields decreased four basis points this week to 4.60%, its lowest level since Nov. 7 when it was 4.56%.

The 11-Bond GO Index of higher-grade 20-year GO yields dropped four basis points this week to 4.31%, its lowest level since Nov. 7 when it was 4.27%.

The Bond Buyer's Revenue Bond Index, which measures 30-year revenue bond yields, rose three basis points this week to 5.26%, the highest the index has been since Sept. 12 when it was 5.31%.

The yield on the U.S. Treasury's 10-year note increased 10 basis points this week to 2.79%, its highest level since Sept. 12 when it as 2.91%.

The yield on the Treasury's 30-year bond gained 10 basis points this week to 3.89%, the highest it has been since July 28, 2011 when it was 4.26%.

The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, decreased three basis points this week to 5.08%, but it remains above its 5.07% average from two weeks ago.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER