Economic indicators

Municipals continue to outperform Treasuries amid a light holiday-shortened week led by a California tobacco deal.

Both personal income and expenditures dropped in February, while personal consumption expenditures also came in weaker than expected, meaning inflation remains in check for now.

Refinitiv Lipper reported more inflows into municipal bond mutual funds to the tune of $592.4 million. Initial jobless claims fell to the lowest point since the pandemic began, moving Treasuries weaker while equities saw gains.

ICI reported another week of inflows at $2.23 billion. U.S. Treasuries strengthened further as COVID-19 concerns linger with shutdowns in Germany and spreads elsewhere. Equities were mixed.

The primary led the secondary to lower yields as UST 10-year fell to lows last seen a week ago. Regional service sector surveys released Tuesday showed improvement, which feeds into the belief that inflation will rise in the near term.

Monday’s economic data suggested weakness, with existing home sales declining for the first time in four months and the Federal Reserve Bank of Chicago’s National Activity Index slipping into negative territory, but economists are not concerned.

Yields jumped as much as 10 basis points as new deals saw some concessions as munis played catch up to the run-up in U.S. Treasury rates after the 10-year hit 1.75% mid-session. Refinitiv Lipper reports nearly $1.3 billion of inflows.

A repricing of Illinois GOs saw the bonds bumped by 12 to 20 basis points from Tuesday's preliminary pricing wires and 17 to 25 basis points from Monday's price talk.

A reversal of fund flows and the arrival of the economic aid for states and local governments helped boost the market's morale ahead of $10 billion in new-issues supply this week.

Municipals largely ignored the moves to higher yields in U.S. Treasuries as participants await the largest new-issue calendar of 2021 and big-name deals out of New York and Illinois.