Secondary bond market

Month-to-date returns for municipals are in the red with the Bloomberg Fixed Income Indices municipal index returning -0.12%, high-yield at -0.15% and taxables at -0.32%.

U.S. Treasuries sold off by double digits while municipals cut levels by one to three basis points. Refinitiv Lipper reported another $1.55 billion of inflows for the 29th consecutive week.

Municipals continue to stay in their own lane. ICI reported $1.4 billion of inflows in the 28th consecutive week.

Data released Tuesday reflected a murky picture on the strength of the economy, but the market’s eyes were fixed on the Federal Reserve’s policy meeting in Washington, D.C.

Morgan Fahy has joined BAM’s capital markets team from Citigroup.

Without the primary in play and a mostly muted secondary, triple-A yield curves were little changed, coming nowhere near the moves in UST with the 10- and 30-year falling five and six basis points as equities saw their worst day since May.

Municipals have been distracted by the robust primary market and that trend will continue next week when another large new-issue calendar greets investors.

Refinitiv Lipper reported $1.3 billion of inflows and an increase in high-yield flows, marking the 28th consecutive week the fund complex saw inflows.

While falling to the lowest amount of inflows since June 2, the total for the year according to ICI at $72 billion, is still on pace to come close to or break the record, $93.2 billion, hit in 2019.

Large new issues from California, New York utilities and airport deals were repriced to lower yields and remained the focus for the municipal market, again ignoring a swing by U.S. Treasuries.

Market participants welcomed the municipal-related provisions in the reconciliation bill but are hesitant to start making bets on its passage.

A larger new-issue calendar greets investors with a lot of cash on hand and strategists expect municipal yields to rise as the calendar builds.

Refinitiv Lipper reported $1.1 billion of inflows into municipal bond mutual funds, with high-yield falling to $144 million. Even with the lower reported inflows, funds still raked in record billions so far in 2021.

The Federal Reserve said Wednesday in its Beige Book report that U.S. economic growth slipped to a more moderate pace between early July and the end of August.

As the market prepares for a smaller primary calendar in the holiday-shortened week, fund flows again are worth exploring as a strong demand component for 2021.

Refinitiv Lipper reported just over $1 billion of inflows into municipal bond mutual funds, an $800 million drop from a week prior, moving the four week moving average to $1.6 billion.

ICI reported $1.99 billion of inflows into municipal bond mutual funds, bringing the total to $69 billion for 2021.

Daily bid-wanteds totals per Bloomberg have fallen to an average par value below $450 million from $640 million per day during the first quarter and $549 million in the second.

Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research, talks with Chip Barnett about what municipal bond investors can expect in the second half of the year – low yields and strong fundamentals. He looks at continuing bond fund inflows, rising taxable issuance and compressed spreads. (14 minutes/Taped Aug. 3).

Returns of negative 0.40% would be the third-worst August performance of the past 10 years, according to Bloomberg data.