Municipals were slightly weaker out longer, but the primary showed where interest lies with new issues faring well and repricing to lower yields. U.S. Treasury yields rose slightly while equities climbed further.
For the 21st week in a row, Refinitiv Lipper reported inflows into municipal bond mutual funds, this time a total of $1.4 billion cash flowing in, with high-yield seeing $578 million of that amount.
Inflows into municipal bond mutual funds have averaged about $1.6 billion per week in 2021.
Municipal-to-UST ratios hovered at recent percentages and were at 65% for the 10-year and the 30-year was at 72%, according to Refinitiv MMD. ICE Data Services had the 10-year muni-to-Treasury ratio at 67% and the 30-year at 72%.
Washington general obligation bonds came at tighter spreads than a spring sale in the competitive market while sizable negotiated deals saw bumps in repricings.
In the primary, Washington sold $640.4 million of general obligation bonds in the competitive market in line with the credit's recent spreads. Five-year bonds were +1 to triple-As, 10-years were +8, +8 in 15 years, +13 in 20 and +12 in 25 years. When the state sold on April 20, bonds came at +2 basis points in 5 years, +7 in 10 years, +10 in 15 years, and +15 in 20-25 years, according to Refinitiv MMD.
BofA Securities won $316 million and $42 million of the GOs. The first tranche saw 5s of 2027 at 0.49%, 5s of 2031 at 0.90%, 5s of 2036 at 1.10% and 5s of 2039 at 1.22%. The second saw 5s of 2022 at 0.06%, 5s of 2026 at 0.37%, 5s of 2031 at 0.90%, 5s of 2036 at 1.10%, 5s of 2041 at 1.32% and 5s of 2046 at 1.47%.
Wells Fargo won $282.4 million of the GOs with 5s of 2040 at 1.29%, 5s of 2041 at 1.32% and 5s of 2046 at 1.47%.
Barclays Capital Inc. priced for the Michigan State Housing Development Authority (Aa2/AA+//) $177.77 million of non-AMT single-family mortgage revenue social bonds. Bonds in 12/2021 priced at par at 0.20%, bonds in 6/2022 and 12/2022 at par at 0.25%, 6/2026 at 0.80% par, 12/2026 at 0.90% par, 6/2031 at 1.75% par, 12/2031 at 1.80% par, 12/2036 at 1.95% par, 12/2041 at 2.15% par, 6/2046 at 2.30% par, 6/2052 at 2.40% par and 6/2052 at 3.00% par.
PNC Capital Markets LLC priced for Durham, North Carolina, (Aa1/AAA/AA+/) $242 million of utility system revenue refunding bonds with 3s of 2022 at 0.08%, 5s of 2026 at 0.43%, 5s of 2031 at 0.95%, 2s of 2036 at 1.88%, 2s of 2041 at 2.05%, 2.25s of 2046 at 2.22% and 2.25s of 2051 at 2.27%.
Citigroup Global Markets Inc. priced and repriced for the McKinney Independent School District, Texas, (Aaa/AAA//) (PSF guarantee) $128.28 million of unlimited tax school building refunding bonds with bumps on the short end. Bonds in 2022 with a 5% coupon yield 0.06% (-1), 5s of 2026 at 0.36% (-4), 4s of 2031 at 1.02%, 1.75s of 2036 at 1.82% and 2s of 2041 at 2.10%.
Refinitiv Lipper reports $1.4B inflow
In the week ended July 28, weekly reporting tax-exempt mutual funds saw $1.394 billion of inflows, according to Refinitiv Lipper. It followed an inflow of $1.727 billion in the previous week.
Exchange-traded muni funds reported inflows of $483.129 million, after inflows of $281.796 million in the previous week. Ex-ETFs, muni funds saw inflows of $910.635 million after inflows of $1.445 billion in the prior week.
The four-week moving average remained positive at $1.913 billion, after being in the green at $1.772 billion in the previous week.
Long-term muni bond funds had inflows of $573.189 million in the latest week after inflows of $1.098 billion in the previous week. Intermediate-term funds had inflows of $50.669 million after inflows of $131.699 million in the prior week.
National funds had inflows of $1.276 billion after inflows of $1.630 billion while high-yield muni funds reported inflows of $578.107 million in the latest week, after inflows of $578.932 million the previous week.
Secondary trading and scales
Trading up front showed steady prints. Ohio 5s of 2022 traded at 0.07%-0.06%. New York Dorm PIT 5s of 2022 at 0.06%. South Carolina 5s of 2022 at 0.07%.
Montgomery County, Maryland, 5s of 2025 at 0.28%. Georgia 4s of 2025 at 0.22%-0.21% versus 0.28%-0.24% Tuesday. Connecticut 5s of 2026 at 0.34% versus 0.36% Tuesday. Texas 5s of 2027 at 0.55%. California 5s of 2027 at 0.56%.
Washington 5s of 2029 at 0.69% versus 0.77% a week ago and less than the 0.73% it sold at Thursday.
New York EFC 5s of 2030 at 0.80%. King County, Washington, 5s of 2032 traded at 0.96% from 1.01% original.
Los Angeles Department of Water and Power 5s of 2040 at 1.23%-1.22% versus 1.21% Tuesday.
According to Refinitiv MMD, yields were steady at 0.05% in 2022 and at 0.06% in 2023. The yield on the 10-year sat at 0.82% while the yield on the 30-year rose two to 1.39%.
ICE municipal yield curve saw the one-year steady at 0.05% in 2022 and at 0.06% in 2023. The 10-year maturity at 0.85%, up one, and the 30-year yield rose two basis points to 1.38%.
The IHS Markit municipal analytics curve saw the one-year steady at 0.05% and the two-year at 0.06%, with the 10-year up one to 0.83%, and the 30-year yield rose one to 1.37%.
Bloomberg BVAL saw levels 0.04% in 2022 and at 0.04% in 2023, both steady, while the 10-year rose one to 0.83% and the 30-year rose two to 1.37%.
Treasuries rose slightly while equities were mixed. The 10-year Treasury was yielding 1.26% and the 30-year Treasury was yielding 1.91% in late trading. The Dow Jones Industrial Average gained 179 points or 0.51%, the S&P 500 rose 0.49% while the Nasdaq gained 0.74%.
GDP falls short
The gross domestic product report missed expectations despite strong consumer spending, amid a jump in inflation that may or may not be transitory, according to economists, but it won’t delay the Federal Reserve’s ability to taper.
The report “showed very strong consumer spending — at almost a 12% annual growth rate — but other factors held back the overall pace of growth,” said Mike Fratantoni, senior vice president and chief economist of the Mortgage Bankers Association. A drop in inventories resulting from supply-chain issues, imports growing faster than exports, and a decline in federal government all weighed on growth.
Another takeaway from the report was a rise in inflationary pressures. “Whether this increase in inflation is transitory or more persistent is one of the more important questions for the Federal Reserve to ponder over the next few quarters as they decide their next steps on rates,” he said.
Despite this month’s miss, “the recovery in GDP has been much faster than even the most optimistic earlier forecasts,” said Berenberg chief economist for the U.S., Americas and Asia Mickey Levy. “This has lifted profits and employment, but the recovery in labor markets has lagged GDP, constrained in part by shortages in labor supply.”
Wages have risen as well. “If healthy growth is sustained, as we expect (and the Fed projects), profits will continue to rise, labor markets will recover (although we anticipate ongoing distortions in labor markets and further wage pressures), and underlying inflation pressures will mount, even as some of the temporary factors that have accentuated price increases dissipate,” he said.
GDP rose at a 6.5% annual rate in the second quarter, according to the advance estimate, after a revised 6.3% jump in the first quarter.
Economists polled by IFR Markets expected 8.6% economic growth in the quarter.
The personal consumption expenditures price index soared 6.4% in the initial read, after a 3.8% gain in the prior quarter while the core PCE price index rose 6.1% after 2.7% growth in the first three months of the year.
However, Diane Swonk, chief economist at Grant Thornton, wrote off the “disappointing” report as the result of a drop in “state and local government spending, which will be recouped later this year.”
The Delta variant of COVID-19 concerns her, since it cut “spending in the service sector through the summer months” and “delayed the return to offices for some companies to later this year and upped the pressure on their workers getting vaccinated.”
The strength in consumption eases the miss in expectations, said DWS U.S. Economist Christian Scherrmann, “this should form the basis for the Fed to consider a gradual reduction of monetary accommodation by the end of this year.”
Separately, initial jobless claims fell to 400,000 in the week ended July 24, on a seasonally adjusted basis, from an upwardly revised 424,000 the week before, first reported as 419,000 claims.
Economists expected 375,000 claims in the week.
Continuing claims increased to 3.269 million in the week ended July 17, from an upwardly revised 3.262 million in the prior week, initially reported as 3.236 million.
Also released Thursday, pending home sales fell 1.9% to 112.8 in June after a revised 8.3% jump in May, first reported as a gain of 8.0%, according to the National Association of Realtors.
Economists anticipated a 0.5% increase.
Chip Barnett contributed to this report.
