Lipper reports $1.2B inflows, ICI sees first outflows in 6 months; Muni yields slip as vaccine rally wanes

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Municipal bonds strengthened on Thursday after a one-day break in the trading week. Yields on top-quality bonds fell as much as four basis points on the intermediate- to long-end of AAA curves. Yields on U.S. Treasuries dropped as much as nine basis points.

"Coronavirus resurgence has cities and states planning on, if not already executing, re-opening rollbacks despite hopes of a vaccine on the horizon. The vaccine rally seen in stocks has paused," said Peter Franks, Refinitiv MMD senior market analyst. "Munis are showing a firm tone in the midst of it all, with no major new issues on the docket today or tomorrow given the holiday yesterday. Lack of supply helps muni yields creep lower from the 10-year range and longer."

A lackluster tone as well as credit concerns continued to hang over the municipal market, according to a New York trader.

“You had a holiday during the week so it feels like a Monday today,” the trader said. As a result, Thursday’s market was quiet, but firm with little new-issue supply to speak of and limited activity in the secondary market.

“The market feels strong, and they are bumping the scale a little,” he said. “People have cash, but not being overly aggressive.” That is due to the growing fears and “question marks” in the minds of investors due to COVID-19 impacts on state and local government credits.

Results were mixed when looking at the latest data on municipal bond mutual funds.

Investors made an about face and put cash back into tax-exempt mutual funds, with Refinitiv Lipper reporting Thursday that muni bond funds saw about $1.167 billion of inflows in the latest reporting week after almost $1 billion of outflows in the prior week.

Meanwhile on Wednesday, the Investment Company Institute reported that for the first time in over six months, muni bond and exchange-traded funds saw outflows. ICI data is a week behind Lipper. ICI reported $243 million of outflows in the week ended Nov. 4. The last time ICI reported outflows was in the week ended April 29, when the funds saw investors pulled $1.739 billion of out of the funds.

The primary market remained quiet ahead of next week’s calendar, which already hosts large deals from New Jersey and Massachusetts.

Primary market
RBC Capital Markets received the award on the North Dakota Housing Finance Agency’s (Aa1/NR/NR/NR) $125 million of housing finance program bonds for the state’s home mortgage finance program.

The bonds, not subject to the alternative minimum tax, were priced at par to yield from 0.20% in 2021 to 2.05% in 2032, 2.10% in 2035, 2.35% in 2040 and 2.50% in 2044. A 2051 maturity was priced as a PAC bond at 109.73 with a 3% coupon to yield about 0.99% with an average life date of 2025.

Next week, New Jersey (A3/BBB+/A-/A) is coming to market with $4 billion of COVID-19 emergency general obligation bonds.

BofA Securities is expected to price the deal next Thursday. The issue consists of Series 2020A tax-exempt GOs and Series 2020B taxable GO social bonds.

The upcoming deal will be heading to market after a week-old downgrade. S&P Global Ratings cut the state’s GOs to BBB+ from A-minus on Nov. 6 based on steep revenue losses triggered by the coronavirus.

The latest downgrade places S&P's New Jersey rating one notch below Moody’s Investors Service and Fitch Ratings, which both affirmed the state, at A3 and A-minus with negative outlooks, respectively. Kroll Bond Rating Agency rates New Jersey bonds A with a stable outlook.

“We’ll have to see what happens,” the trader said, adding that the cost of the downgrade will likely be substantial.

“That’s billions of dollars — we will have to see how many basis points it will be. The confidence in the state of New Jersey is kind of shaky right now,” he added, pointing to the downgrade as well as to the rising levels of COVID infections in the Garden State.

Acacia Financial Group is the financial advisor; M. Jeremy Ostow and CSG are the bond counsel. Co-managers include Barclays; Citigroup; JPMorgan Securities; Siebert Williams Shank; Wells Fargo Securities; Robert W. Baird; Blaylock Van; Goldman Sachs; Jefferies; Loop Capital Markets; Morgan Stanley; Ramirez & Co.; Raymond James; Rice Financial Products Co.; Stifel; Sturdivant and UBS Financial.

Morgan Stanley is expected to price Massachusetts’ (Aa1/AA/AA+/) $1.362 million of GOs next week.

The deal consists of $500 million of consolidated loan of 2020 Series E GOs, $417.655 million of Series 2020D GO refunding bonds and $444.09 million of Serties 2020E taxable GO refunding bonds.

PFM is the financial advisor; Mintz is the bond counsel. Co-managers are BofA; Jefferies; Academy Securities; Citi; Goldman Sachs; Janney; Loop Capital Markets; Ramirez & Co.; and Raymond James.

Refinitiv Lipper reports $1.2 B inflow
In the week ended Nov. 11, weekly reporting tax-exempt mutual funds saw $1.167 billion of inflows. It followed an outflow of $954.015 million in the previous week.

Exchange-traded muni funds reported inflows of $617.748 million, after inflows of $24.840 million in the previous week. Ex-ETFs, muni funds saw inflows of $548.860 million after outflows of $978.854 million in the prior week.

The four-week moving average remained positive at $350.497 million, after being in the green at $212.457 billion in the previous week.

Long-term muni bond funds had inflows of $911.719 million in the latest week after outflows of $887.545 million in the previous week. Intermediate-term funds had outflows of $73.234 million after outflows of $120.110 million in the prior week.

National funds had inflows of $1.130 billion after outflows of $805.232 million while high-yield muni funds reported inflows of $526.256 million in the latest week, after outflows of $260.247 million the previous week.

ICI: Muni bond funds see $243M outflow
Long-term municipal bond funds and exchange-traded funds saw combined outflows of $243 million in the week ended Nov. 4, ICI reported Wednesday. In the week ended Oct. 28, muni funds saw an inflow of $1.220 billion, ICI said.

Long-term muni funds alone had an outflow of $254 million in the latest reporting week after an inflow of $1.048 billion in the prior week. ETF muni funds alone saw an inflow of $11 million after an inflow of $172 million in the prior week.

Taxable bond funds saw combined outflows of $3.104 billion in the latest reporting week after an inflow of $7.312 billion in the prior week.

ICI said the total combined estimated outflows from all long-term mutual funds and ETFs were $20.040 billion after an outflow of $21.304 billion in the previous week.

Secondary market
Some notable trades Thursday:

Wake County, North Carolina 5s of 2023 traded at 0.23%. Dallas ISD 5s of 2025 at 0.52%. Hennepin County, Minnesota 5s of 2029 at 0.79%-0.70%.

Baltimore County, Maryland 5s of 2030 at 0.86%. Maryland GOs, 5s in 10 years, traded at 0.87%. They traded at 0.90% Tuesday. University of Texas 5s of 2030 traded at 0.96%-0.95% after trading Tuesday at 1.00%. Loudon County, Virginia 5s of 2031 traded at 0.92%.

Further out, Arlington County, GOs, 4s of 2035, traded at 1.28%-1.26%. Washington GOs, 5s of 2039, at 1.38%-1.34%. NYC TFA subs 4s of 2040 at 2.06%-2.07%. Texas waters 3s of 2040 at 1.67%. NYC TFA subs 4s of 2047 at 2.28%-2.18%.

High-grade municipals were stronger, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields were down one basis point to 0.17% in 2021 and 0.18% in 2022. The yield on the 10-year muni fell three basis points to 0.83% while the yield on the 30-year dropped four basis points to 1.57%.

The 10-year muni-to-Treasury ratio was calculated at 93.8% while the 30-year muni-to-Treasury ratio stood at 95.0%, according to MMD

The ICE AAA municipal yield curve showed short maturities unchanged at 0.18% in 2021 and 0.20% in 2022. The 10-year maturity dropped three basis points to 0.83% and the 30-year yield fell four basis points to 1.59%.

The 10-year muni-to-Treasury ratio was calculated at 94% while the 30-year muni-to-Treasury ratio stood at 96%, according to ICE.

The IHS Markit municipal analytics AAA curve showed yields dipping across the curve, at 0.19% and 0.20% in 2021 and 2022, respectively, and the 10-year at 0.84% with the 30-year yield at 1.63%.

The BVAL AAA curve showed the yields on the 2021 and 2022 maturities unchanged at 0.15% and 0.17%, respectively, while the 10-year was down two basis points to 0.85% while the 30-year decreased three basis points to 1.63%.

Treasuries were stronger as stock prices traded down.

The three-month Treasury note was yielding 0.10%, the 10-year Treasury was yielding 0.89% and the 30-year Treasury was yielding 1.66%. The Dow fell 1.45%, the S&P 500 decreased 1.30% and the Nasdaq lost 0.80%.

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Primary bond market Secondary bond market Municipal bond funds State of New Jersey Commonwealth of Massachusetts
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