Top-shelf municipal bonds finished stronger on Thursday, according to traders, as the last of the week's big new issues came to market.
The yield on the 10-year benchmark muni general obligation fell three basis points to 1.62% from 1.65% on Wednesday, while the 30-year muni yield dropped three basis points to 2.58% from 2.61%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were stronger as well on Thursday. The yield on the two-year Treasury fell to 0.79% from 0.86% on Wednesday, while the 10-year Treasury yield dropped to 1.83% from 1.87% and the yield on the 30-year Treasury bond decreased to 2.70% from 2.72%.
A trader said munis rose along with Treasuries in a modest rally following Wednesday's Federal Reserve meeting on monetary policy. Muni yields fell slightly on Wednesday after the Federal Open Market Committee took no action on interest rates. Many market participants now feel the Fed may raise rates only once this year – at its meeting in September.
The 10-year muni to Treasury ratio was calculated at 88.3% on Thursday compared with 88.5% on Wednesday, while the 30-year muni to Treasury ratio stood at 95.9% versus 96.5%, according to MMD.
Primary Market
In the competitive arena on Thursday, Rhode Island sold a total of $125.81 million of tax-exempt and taxable consolidated capital development loan of 2016 general obligation bonds in two separate sales.
Wells Fargo Securities won the $112.64 million of tax-exempt Series A GOs and tax-exempt Series C refunding GOs with a true interest cost of 2.39%.
The $58.84 million of Series A bonds were priced to yield from 0.59% with a 2% coupon in 2017 to approximately 3.10% in 2036 with a 3% coupon. The $53.99 million of Series C bonds were priced as 5s to yield from 0.61% in 2017 to 1.34% in 2022.
JPMorgan Securities won the $13.17 million of taxable Series B GOs with a TIC of 1.39%. The issue was priced to yield from 0.72% with a 0.75% coupon in 2017 to 1.60% with a 1.75% coupon in 2021.
Both sales are rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.
Since 2006, the Rhode Island has sold about $2 billion of debt with the most issuance occurring in 2014 when it issued $336.4 million of bonds. The state sold the least amount of bonds in 2009 when it offered $54.6 million of debt.
Bank of America Merrill Lynch priced the Public Power Generation Agency, Neb.'s $136 million of Series 2016A revenue refunding bonds for the Whelan Energy Center's Unit 2.
The issue was priced as 5s to yield from 2.75% in 2032 to 3.07% in 2041. The deal is rated A2 by Moody's and A-minus by Fitch.
Citigroup priced the Mission Economic Development Corp., Texas' $202.89 million of Series 2016B senior lien revenue bonds for the Natgasoline project.
The issue, which is subject to the alternative minimum tax, was priced as 5 3/4s to yield 6.20% in a 2031 bullet maturity. The deal has a preliminary rating of BB-minus from S&P.
Tax-Exempt Money Market Funds See Outflows
Tax-exempt money market funds experienced outflows of $3.85 billion, bringing total net assets to $217.75 billion in the week ended April 25, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $2.73 billion to $221.60 billion in the previous week.
The average, seven-day simple yield for the 315 weekly reporting tax-exempt funds was unchanged from the previous week at 0.05%.
The total net assets of the 909 weekly reporting taxable money funds increased $18.87 billion to $2.476 trillion in the week ended April 26, after an outflow of $31.82 billion to $2.457 trillion the week before.
The average, seven-day simple yield for the taxable money funds dipped to 0.10% from 0.11% in the prior week.
Overall, the combined total net assets of the 1,224 weekly reporting money funds increased $15.02 billion to $2.694 trillion in the period ended April 26, which followed an outflow of $34.55 billion to $2.679 trillion.
Report: Municipal Performance Good in Q1
The municipal bond market garnered good reviews for its performance in the first quarter of the year, Wilmington Trust Corp. said in its quarterly market report.
"The tax-exempt market made a terrific showing in the first quarter of the year, as the S&P Municipal Bond Index, with a 6.159 year duration, generated +1.63%," the report said. "The Intermediate Index produced a +1.71% total return, while the Short Intermediate printed +1.01%. The Short Index was up slightly at +0.54% and the High Yield Index was +2.26% for the first quarter of 2016."
However, as interest rates declined during the first quarter, high-grade tax-exempt municipal bonds underperformed U.S. Treasuries, the report said.
At the beginning of the first quarter, the 10-year U.S. Treasury was yielding 2.27%, falling to 1.77%, by the quarter's end, Wilmington Trust said.
"The 10-year S&P AAA municipal yield began the quarter at 1.94%, about 33 basis points lower than the U.S. Treasury," the report stated. "By the end of March, however, the municipal yield trended 24 basis points lower to print 1.70%."
