Munis stay stronger as Federal Reserve leaves interest rates unchanged
Municipals finished stronger Thursday, on a day when activity was muted as the Federal Open Market Committee concluded its two-day meeting with no action taken on interest rates.
No increase had been expected from the current 2% to 2.25% range in the federal funds rate. Observers expect the Fed to raise it by 25 basis points in December. The FOMC statement was tweaked regarding business fixed investment, which the panel said is now moderating after strong growth earlier this year. This was the final meeting without a press conference, as Chair Jerome Powell previously announced that he will face the press after every FOMC meeting starting in January.
"Other than the recognition of weaker business investment numbers in the Q3 national accounts, the commentary here is a copy and paste job from September," said Fitch Ratings' chief economist Brian Coulton. "In a way, the most interesting thing is the absence of any reference to October’s stock market volatility, which implies the Fed is not concerned that there’s been any material tightening of financial conditions. Alongside the October wage print, it now looks like a hike in December is pretty much set in stone."
Municipal bonds were stronger on Thursday, according to a late read of the MBIS benchmark scale. Benchmark muni yields dipped as much as one basis point in the three- to 30-year maturities while dropping 10 basis points in the one-year maturity and declining three basis points in the two-year maturity.
High-grade munis were stronger too, with yields calculated on MBIS' AAA scale decreasing as much as one basis point in the two- to 30-year maturities and declining eight basis points in the one-year maturity.
Municipals were steady on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the yield on 30-year muni maturity remaining unchanged.
Treasury bonds were stronger as stocks traded lower. The Treasury 10-year stood at 3.231% while the Treasury 3-month bills was at 2.358%.
On Thursday, the 10-year muni-to-Treasury ratio was calculated at 85.1% while the 30-year muni-to-Treasury ratio stood at 100.5%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.
The market on Thursday was basking in the afterglow of election results that some say are beneficial to the muni market.
“The switch in control of the U.S. House of Representatives to Democrats likely lowers the prospect for near term tax cuts, putting the value of the tax exemption on more solid ground,” said Alan Schankel, managing director at Janney. “We’d note that divided government may actually improve the prospects for some type of federal infrastructure legislation. Will Build America Bonds return?”
Additionally, many questions that were important to muni investors were on the ballot Tuesday, and a majority were approved.
“Voters in three states (Idaho, Nebraska and Utah) voted to expand Medicaid, a positive credit development for healthcare systems that benefit from more insured patients,” he wrote in a Thursday market comment. “Florida voters overwhelmingly approved a constitutional amendment requiring a 2/3 majority legislative vote for new taxes and fees. Although Florida is very strong from a credit perspective, with a June Moody’s upgrade solidifying the third most populous state’s AAA rating status, such a restriction could be a credit negative in more stressful economic times since it impedes the state’s ability to increase revenue if needed.”
Previous session's activity
The Municipal Securities Rulemaking Board reported 43,931 trades on Wednesday on volume of $14.15 billion.
California, New York and Texas were the municipalities with the most trades, with the Golden State taking 15.241% of the market, the Empire State taking 13.782% and the Lone Star State taking 10.27%.
Muni money market funds see inflows
Tax-free municipal money market fund assets increased $1.20 billion, raising their total net assets to $135.27 billion in the week ended Nov. 5, according to the Money Fund Report, a service of iMoneyNet.com.
The average seven-day simple yield for the 196 tax-free and municipal money-market funds inched up to 1.17% from 1.16% last week.
Taxable money-fund assets increased $26.64 billion in the week ended Nov. 6, raising total net assets to $2.739 trillion.
The average, seven-day simple yield for the 826 taxable reporting funds grew to 1.82% from 1.80% last week.
Overall, the combined total net assets of the 1,022 reporting money funds rose $27.84 billion to $2.874 trillion in the week ended Nov. 5.
The market will see a more robust new issue calendar in a holiday shortened week. Financial markets will be closed Monday in observance of Veterans Day.
Some of the bigger names already on the slate for next week include a $595 million deal from the Michigan Strategic Fund to be priced by Bank of America Merrill Lynch. The deal consists of limited obligation revenue bonds for the I-75 improvement project.
Also on tap: Wells Fargo Securities is set to price South Carolina Jobs and Economic Development’s $587 million of hospital revenue bonds for the Prisma Health Obligated Group; RBC Capital Markets is expected to price the Los Angeles Department of Water and Power’s $426 million of water system revenue bonds; and BAML is set to price the New Jersey Economic Development Authority’s $401 million of school facilities construction and refunding bonds.
On Thursday, Ramirez priced Orlando, Fla.’s $105.14 million of Series 2018B capital improvement special revenue bonds.
The deal is rated Aa2 by Moody’s Investors Service and AA-plus by S&P Global Ratings and Fitch Ratings.
Late Wednesday, Wells Fargo priced the State of New York Mortgage Agency’s $147.26 million of homeowner mortgage revenue bonds consisting of Series 213 bonds not subject to the alternative minimum tax and Series 214 AMT bonds. The deal is rated Aa1 by Moody’s.
Bond sales results
Bond Buyer 30-day visible supply at $6.94B
The Bond Buyer's 30-day visible supply calendar increased $279.6 million to $6.94 billion for Thursday. The total is comprised of $2.25 billion of competitive sales and $4.70 billion of negotiated deals.
Treasury sets auctions details
The Treasury Department announced these auctions:
- $39 billion of 182-day bills selling on Nov. 13;
- $45 billion of 91-day bills selling on Nov. 13;
- $30 billion of eight-week bills selling on Nov. 13; and
- $50 billion or four-week bills selling on Nov. 13.
Gary Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Ziad Saba at 212-803-6079 for more information.