Munis were quiet on Thursday, as the market closed early ahead of the Independence Day holiday. U.S. Treasuries were mixed, but yields saw smaller adjustments than earlier in the week.
Muni yields were changed up to two basis points, depending on the scale. UST yields richened by up to four basis points five years and in and cheapened by up to two basis points out long.
Munis were insulated from Treasury volatility throughout the week thanks to the muni market's low volume and July reinvestment, Peter DeGroot wrote for J.P. Morgan's Municipal Morning Intelligence. Before the weaker-than-expected June payroll data, two-year muni ratios hit three-year lows, DeGroot wrote.
"Even with richer ratios and significant outperformance in spread product and the high-yield sector of the market, it is hard to construct a scenario in which municipal market prices fall next week against a manageable (~$10 billion) tax-exempt calendar, inflows at a near record for the year-to-date period ... and the addition of the aforementioned July redemption capital," DeGroot wrote.
Payrolls
Fewer-than-expected jobs added and a drop in the unemployment rate highlighted "a mixed June employment report," and took "the steam out of market expectations for Federal Reserve rate hikes by year end," said Jennifer Timmerman, senior investment strategy analyst at Wells Fargo Investment Institute.
"A drop in shorter-term U.S. Treasury yields is responsible for a bull steepening of the yield curve as Fed-fund futures data pare back expectations of a Fed rate hike by year end," she said.
The market viewed the "report as a dovish surprise to the Fed rate outlook, with Treasury yields modestly lower and equities higher," noted
FHN Financial Chief Economist Chris Low saw it as "a relief rally." He added, "Traders, apparently, feared job growth might be strong enough to bolster the case for hikes."
Bond yields, especially at the short end of the curve, moved lower after the report, said Brock Weimer, an analyst in investment strategy at Edward Jones. "This likely reflects investor expectations that the slower pace of job growth reduces the urgency for the Fed to raise interest rates, supporting the case for holding rates steady in the near-term."
Fund flows
Investors added $1.67 billion into municipal bond mutual funds in the week ended Wednesday, following $633 million of inflows the prior week, according to LSEG Lipper data.
High-yield funds saw inflows of $535.5 million compared to inflows of $65.7 million the previous week.
Tax-exempt municipal money market funds saw outflows of $262.2 million for the week ending June 29, bringing total assets to $148.875 billion, according to the Money Fund Report, a weekly publication of EPFR.
The average seven-day simple yield for all tax-free and municipal money-market funds was 2.28%.
Taxable money-fund assets saw $34.269 billion pulled, bringing the total to $7.728 trillion.
The average seven-day simple yield was 3.34%.
The SIFMA Swap Index was at 1.64% on Wednesday compared to the previous week's 2.67%.
Primary to come
Issuance is an estimated $9.48 billion for the week of July 6. There are $8.03 billion of negotiated deals on tap and $1.45 million of competitives.
California State University leads the negotiated calendar with $1.8 billion of systemwide revenue bonds, to be priced across four tranches.
The competitive calendar is led by the New York State Thruway Authority, with $566.67 million of general revenue bonds in two series.
