Municipal bonds remained stronger at mid-session, traders said, as the shaky economic situation in China once again caused volatility in U.S. markets.
The yield on the 10-year benchmark muni general obligation weakened as much as two basis points from 1.77% on Wednesday, while the 30-year muni yield was weaker by as much as two basis points from 2.70%, according to a read of Municipal Market Data's triple-A scale.
For the second time in a week, it was all about China. Circuit-breakers kicked in and halted trading in stocks on the China mainland, this time after only about half an hour of activity after the Shanghai Composite Index fell by about 7%. A weaker currency was cited as the main reason for the rout. Stock markets across the region fell in response, with the Hong Kong market down about 3%, the Japanese market off more than 2% and the South Korea market down around 1%.
In midday trading, the Dow Jones Industrial Average was off about 191 points, the Nasdaq Composite Index lost around 80 points and the S&P 500 Index fell 25 points. In earlier trading, the Dow had been off more than 200 points.
Treasuries turned mostly lower after rising in earlier trade. The yield on the two-year Treasury fell to 0.98% from 0.99% on Wednesday, while the 10-year Treasury yield rose to 2.19% from 2.17% and the 30-year Treasury bond yield increased to 2.97% from 2.94%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 81.4% compared with 82.4% on Tuesday, while the 30-year muni to Treasury ratio stood at 91.9% versus 92.1%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 39,195 trades on Wednesday on volume of $10.10 billion.
McDonnell Investment Management Weighs in on 2016
Will the new year be a continuation of trends we saw in 2015 or is it a watershed year?
Jim Grabovac, managing director and senior portfolio manager at McDonnell Investment Management, thinks this year will be a continuation of trends such as dollar strength and global cooling, driven by weakness of the outlook in China as well as pressure in commodities, like energy and oil, and an overall low-inflation environment.
"We don't see a recession on the medium term horizon and the overall recovery continues, rates are relatively well contained, and we expect that the Fed will make good on their intention in their effort to tighten and normalize, as well as being less aggressive," said Grabovac. "There is ample room for more refundings and the flatter the curve gets with the rate hikes, the more that will continue. While we won't reach the amount of refundings we saw in 2015, there should still be a good amount and it help us for another good year volume-wise."
When it comes to transportation-related deals, now that the funding bill has passed, Dawn Mangerson, managing director and senior portfolio manager at McDonnell, hopes to see more of that kind of deals.
"It is more like wishful thinking to see more supply in the transportation sector, with a lot of municipalities putting those deals on the back-burner, the further along removed we get from the recession, the more they should be able to take on more of that debt, especially now they can have help from the federal government," she said.
Mangerson also said those types of deals offer a little more yield and return without spread widening.
Tax-Exempt Money Market Funds Post Inflows
Tax-exempt money market funds experienced inflows of $2.54 billion, bringing total net assets to $256.71 billion in the week ended Jan. 4, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $560.1 million to $254.16 billion in the previous week.
The average, seven-day simple yield for the 359 weekly reporting tax-exempt funds remained at 0.01% for the 140th straight week.
The total net assets of the 939 weekly reporting taxable money funds decreased $16.06 billion to $2.492 trillion in the week ended Jan. 5, after an outflow of $4.14 billion to $2.508 trillion the prior week.
The average, seven-day simple yield for the taxable money funds held steady at 0.06% for the second consecutive week.
Overall, the combined total net assets of the 1,298 weekly reporting money funds fell $13.51 billion to $2.749 trillion in the period ended Jan. 5, which followed an outflow of $3.58 billion to $2.763 trillion in the prior week.
Primary Market
On Thursday, Bank of America Merrill Lynch priced the South Carolina Public Service Authority's $526.23 million of Series 2016A tax-exempt revenue obligation refunding bonds.
The issue was priced as 5s to yield 1.51% in 2021 and 1.70% in 2022 and priced to yield from 2.21% with a 5% coupon in 2025 to 3.64% with a 4% coupon in 2041; a 2047 maturity was priced as 3 3/4s to yield 3.90% and a 2049 maturity was priced as 4s to yield 3.90%.
The bonds are rated A1 by Moody's Investors Service, A-minus by Standard & Poor's and A-plus Fitch Ratings.
BAML also priced the Board of Regents of the University of Texas system's $250 million of Series 2016A taxable revenue financing system bonds at par to yield 3.852% in 2046, which is about 88 basis points above the comparable Treasury maturity. The bonds are rated triple-A by Moody's, S&P and Fitch.
And BAML is expected to price the city of Tallahassee, Fla.'s $150 million of Series 2016A project healthcare facilities revenue bonds for Tallahassee Memorial Healthcare Inc. The issue is rated Baa1 by Moody's.
JPMorgan Securities priced the KU Central Development Corp.'s $333.18 million of Series 2016 lease revenue bonds for the Central District Development Project, which are being issued through the Wisconsin Public Finance Authority.
The deal was priced to yield from 0.91% with a 4% coupon in 2018 to 3% with a 5% coupon in 2036; a 2041 maturity was priced as 5s to yield 3.19%, a 2046 maturity was priced as 5s to yield 3.25%, and a 2051 maturity was priced as 5s to yield 3.35%. The issue is rated Aa2 by Moody's.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar rose $993.6 million to $10.49 billion on Thursday. The total is comprised of $4.82 billion competitive sales and $5.67 billion of negotiated deals.
