Municipal bond benchmark yields fell another two to six basis points Thursday, marking a three-day rally along with U.S. Treasuries as a risk-off trade took hold while inflows continue to flood funds.
U.S. Treasuries continued their rally with the 10-year falling to 1.287% and the 30-year at 1.911% near the close. Municipal-to-UST ratios are in line with movements in both markets. They were at 65% in 10 years and 70% in 30 on Thursday, according to Refinitiv MMD. ICE Data Services had the 10-year muni-to-Treasury ratio at 66% and the 30-year at 70%.
Triple-A benchmarks have seen the 10-year fall by 13 basis points since the start of the month and the 30-year has fallen by 16 basis points.
Refinitiv Lipper reported $2.29 billion of inflows into municipal bond mutual funds for the week ending July 7 of which $682.7 million
Despite the low yields and low ratios, municipals continue to perform better than most fixed-income and equity markets. The Bloomberg Barclays Municipal bond index has returned 1.52% year-to-date, with the best performance continuing to be out long, while the high-performing high-yield index is now up 6.75% YTD and taxables are up 1.37% YTD.
The primary saw new-issues reprice by double-digits and robust secondary trading showed clear movements to lower yields across the credit spectrum.
In the primary market Thursday, J.P. Morgan Securities LLC priced for institutions for the Trustees of the California State University (Aa2/AA-//) $124 million of tax-exempt systemwide revenue bonds with seven- to 14-basis-point bumps from retail pricing. Bonds in 11/2021 with a 5% coupon yield 0.07% (-7), 5s of 2022 at 0.08% (-7), 5s of 2026 at 0.41% (-11), 5s of 2031 at 88% (-14), 4s of 2036 at 1.29% (-12), 3s of 2041 at 1.81% (-5), 3s of 2046 at 1.93% (-8) and 3s of 2052 at 1.98% (-9), callable 11/1/2031.
Goldman Sachs & Co. LLC priced and repriced for the Municipal Electric Authority of Georgia (Baa1/A/BBB+/) $134 million of Plant Vogtle Units 3&4 Project J Bonds, Series 2021A bonds, with 5s of 2025 at 0.39%, 5s of 2026 at 0.56% (-7), 5s of 2031 at 1.15% (-5), 4s of 2036 at 1.49% (-2), 4s of 2041 at 1.72% (-4), 4s of 2046 at 1.74% (-14), 4s of 2051 at 1.93% (-16), 5s of 2046 at 1.85% (-14) and 5s of 2062 at 1.81% (-10). Assured Guaranty insured except for bonds in 2024, 2051 and 2056.
RBC Capital Markets priced for the New Mexico Mortgage Finance Authority (Aaa///) $100 million of single-family mortgage program Class I bonds, all priced at par with bonds in 7/2022 at 0.20%, 1/2026 at 0.75%, 7/2026 at 0.85%, 1/2031 at 1.60%, 7/2031 at 1.65%, 7/2036 at 1.95%, 7/2041 at 2.15%, 7/2046 at 2.30%, 7/2051 at 2.40%.
In the competitive space, Barclays bought $85 million of Miami-Dade County, Florida, (Aa3/AA//) capital asset acquisition bonds. Bonds in 2022 with a 5% coupon yield 0.10%, 5s of 2026 at 0.48%, 5s of 2031 at 1.01%, 4s of 2036 at 1.36%, 4s of 2042 at 1.59% and 4s of 2046 at 1.69%.
Secondary trading and scales
Trading was constructive. Ohio 4s of 2022 at 0.08%-0.07%. South Carolina 5s of 2022 at 0.07% versus 0.10% Wednesday. New York City 5s of 2022 at 0.07%.
Maryland 5s of 2026 at 0.42%. Houston ISD 5s of 2027 at 0.58% versus 0.66% Wednesday and 0.69% Tuesday. California 5s of 2029 at 0.77%.
Hawaii 5s of 2032 at 1.04%. Georgia 5s of 2033 at 0.93%. Howard County, Maryland, 3s of 2033 at 1.15%-1.14% versus 1.19% Wednesday.
UNC Chapel Hill 5s of 2037 at 1.12%-1.11%. Washington 5s of 2037 at 1.13%. Seattle 4s of 2041 at 1.36%.
Los Angeles Department of Water and Power 5s of 2051 traded at 1.37% versus 1.54% on Tuesday.
According to Refinitiv MMD, short yields were fell two basis points to 0.08% in 2022 and 0.12% in 2023. The yield on the 10-year fell four basis points to 0.84% while the yield on the 30-year dropped six basis points to 1.33%.
The ICE municipal yield curve showed bonds fall two basis points to 0.08% in 2022 and to 0.12% in 2023. The 10-year maturity was better by five basis points at 0.87% and the 30-year yield fell five to 1.35%.
The IHS Markit municipal analytics curve showed short yields fall to 0.07% and 0.10% in 2022 and 2023, respectively, with the 10-year down to 0.84%, and the 30-year yield also fell to 1.35%.
Bloomberg BVAL saw short yields fall one basis point to 0.10% and 0.12% while the 10-year fell five basis points to 0.85% and the 30-year down five to 1.35%.
Treasuries were stronger and equities sold off. The 10-year Treasury was yielding 1.287% and the 30-year Treasury was yielding 1.911% near the close. The Dow Jones Industrial Average fell 292 points or 0.84%, the S&P 500 fell 0.96% while the Nasdaq lost 0.78%.
Refinitiv Lipper reports $2.3B inflow
In the week ended July 7, weekly reporting tax-exempt mutual funds saw $2.292 billion of inflows, according to Refinitiv Lipper. It followed an inflow of $832.221 million in the previous week.
Exchange-traded muni funds reported inflows of $330.746 million, after inflows of $185.478 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.961 billion after inflows of $646.743 million in the prior week.
The four-week moving average remained positive at $1.722 billion, after being in the green at $1.765 billion in the previous week.
Long-term muni bond funds had inflows of $1.534 billion in the latest week after inflows of $338.348 million in the previous week. Intermediate-term funds had inflows of $347.064 million after inflows of $39.305 million in the prior week.
National funds had inflows of $2.091 billion after inflows of $843.838 million while high-yield muni funds reported inflows of $682.690 million in the latest week, after inflows of $313.275 million the previous week.
Unemployment
The labor recovery remains uneven, as initial jobless claims inched up in the latest week, with one analyst seeing the number as “skewed,” and a second suggesting the market may have hit a “plateau.”
“The labor market is steadily recovering, but that being said, we are still over seven million jobs away from full employment, a benchmark we do not expect to hit until the second half of 2022,” said Scott Ruesterholz, portfolio manager at Insight Investment. “Increasingly, data may be 'skewed' by states ending enhanced unemployment programs.”
Initial jobless claims rose to 373,000 in the week ended July 3 from an upwardly revised 371,000 the week before, first reported as 364,000 claims.
Economists polled by IFR Markets expected 355,000 claims in the week.
“We may have hit a plateau,” Diane Swonk, chief economist at Grant Thornton, said in a Tweet. “Claims ticked up despite the end of supplements across many states and the roll-back of ineligibility for special pandemic unemployment insurance.” The number of those who’ve collected more than 27 weeks increase in June after two months of declines, she said.
Continuing claims fell to 3.339 million in the week ended June 26, from an upwardly revised 3.484 million in the prior week, initially reported at 3.469 million. This is the lowest total since 3.094 million in the week ended March 21, 2020.
Economists expected 3.338 million continuing claims.
"I expect claims will continue to trend lower, although not at the pace we saw this past spring," said Sarah House, senior economist at Wells Fargo Securities. "With businesses struggling mightily to hire, they are likely to hold on more tightly to existing workers."
With some states no longer handing out enhanced benefits, Ruesterholz said, when you look at the numbers including emergency programs, claims fell by 450,000, “a strong decline.”
“This would normally point to a significant amount of hiring activity, though we caution it could be flattened by states beginning to end these programs,” he said. “These policy changes add to the uncertainty about how to interpret the data.”
With the expiration of the enhanced benefits at the end of summer, the labor supply should increase, the economics team at Morgan Stanley said. But, with limited data from the states that ended the extra payments early, “There is only mixed evidence on whether or not it has moved the needle on labor supply.”
But people who’ve reached the end of their unemployment benefits may not necessarily be returning to the workforce, they wrote in a research paper.
But, through June 19 states that stopped the supplemental payments had the bigger drops in initial claims than states continuing to pay the extra benefits.
Separately, consumer credit surged $35.3 billion in May following an upwardly revised $20.0 billion jump in April, which was first reported as an $18.6 billion rise.
Revolving credit grew by $9.2 billion and non-revolving gained $26.1 billion in the month.
Revolving credit includes credit card debt. Non-revolving debt includes automobile loans, loans for mobile homes, education, boats, trailers, or vacations.
NYC TFA plans $800M sale next week
The New York City Transitional Finance Authority announced it will sell about $800 million of building aid revenue bonds next week.
The BARBs deal will be comprised of about $600 million of tax-exempt fixed-rate bonds and around $200 million of taxable fixed-rate bonds. Proceeds will be used to refund certain outstanding bonds for savings.
Led by book-running lead manager Loop Capital Markets, the tax-exempts will be priced on Wednesday, July 14, after a two-day retail order period. Jefferies and Siebert Williams Shank will serve as co-senior managers.
Also on July 14, the TFA expects to competitively sell the $200 million taxables.
Chip Barnett contributed to this report.
