Municipals were little changed Thursday as the primary market saw several large deals price to good demand as investors see current muni yields more enticing after the rise in triple-A curves Tuesday and Wednesday. U.S. Treasuries were slightly firmer and equities were down near the close.
There has been some trepidation from buyers over the past several days due to the backup in UST rates, said Chris Brigati, senior vice president and director of strategic planning and fixed income research at SWBC.
Thursday saw some stability after rising UST yields on Tuesday, with the 10-year pushing above 4.35%.
Some buying returned to the market from the buy-side and asset managers as dealers attempted to sell bonds.
“The market is healthy. It’s robust. There’s plenty of demand, but it comes in fits and starts depending on market movement or relevant news,” he said.
There remains a supply/demand mismatch.
The typical seasonal supply/demand imbalance of January and February lent itself to more coupons, call and maturities than available bonds, said David Grean, vice president, trader and strategist at Payden & Rygel.
However, that starts to change in mid-March and April when new issuance starts to “come online,” he said.
Issuance picked up Thursday.
In the primary, Barclays priced for the California State Public Works Board (Aa3/A+/AA-/) $924.105 million of Department of General Services May Lee State Office Complex lease revenue bonds. The first tranche, $693.235 million of tax-exempts, 2024 Series A, saw 5s of 4/2034 at 2.88%, 5s of 2039 at 3.30%, 5s of 2044 at 3.71% and 5s of 2049 at 3.93%, callable 4/1/2034.
The second tranche, $230.870 million of taxables, 2024 Series B, saw all bonds price at par: 5.105s of 4/2025, 4.879s of 2029 and 5.08s of 2034, noncall.
Loop Capital Markets priced for Chicago (/A+/A+/AA-/) $229.265 million of second lien wastewater transmission revenue refunding bonds, Series 2024A, with 5s of 1/2025 at 3.59%, 5s of 2029 at 2.97%, 5s of 2034 at 3.11%, 5s of 2039 at 3.53% and 5s of 2044 at 3.96%, callable 1/1/2034.
BofA Securities priced for the
In the competitive market,
The city also sold $197.850 million of combination tax and revenue certificates of obligation, Series 2024B, to BofA Securities, with 5s of 2/2025 at 3.46%, 5s of 2029 at 2.89% and 5s of 2033 at 2.86%, noncall.
Despite the uptick in supply Thursday, demand continues to outstrip supply.
The supply/demand mismatch comes two years after an all-time weak year of demand in 2022, said Adam Congdon, a director at Payden & Rygel.
Demand, though, stabilized in 2023 in “an environment where munis remain unattractive for institutions at large,” he said noting there are some recent proposals that could suggest increased institutional demand if enacted.
These proposals include President Joe Biden’s plan to increase the minimum tax on profitable institutions to 21% and raise the marginal tax rate to 28%, Congdon said.
The market will also see some pressure right now, especially for ultra-high quality munis around tax time, he said.
Despite this, munis should have a “little bit of a quiet period,” heading into April 15, Brigati said.
Typically, investors “pay more attention to paying taxes; they withdraw funds,” he said.
The two-year muni-to-Treasury ratio Thursday was at 67%, the three-year at 65%, the five-year at 62%, the 10-year at 61% and the 30-year at 84%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 66%, the three-year at 65%, the five-year at 62%, the 10-year at 62% and the 30-year at 83% at 3:30 p.m.
Muni-UST ratios across the curve are above 60%, representing near-term opportunity and attractiveness, Brigati said.
This, he noted, coincides with the “typical pattern of interest” that happens around this time of year.
“It’s a cyclical thing; there’s nothing systemically changed,” he said.
For people looking to push cash to work, interest rates are generally at attractive levels, according to Brigati.
LSEG Lipper reported fund inflows of $80 million for the week ending Wednesday following
High-yield muni bond funds saw another round of inflows at $161.1 million compared to last week’s inflows of $246.3 million and marking the 13th consecutive week of positive flows in that space.
These inflows reverse the trend of outflows from 2022 and 2023.
Muni mutual funds saw massive outflows in 2022 to the tune of $120 million, followed by smaller outflows in 2023, Grean said.
However,
Some participants on the Street estimate that SMAs hold as much as $1.5 trillion of munis while others peg it closer around $700 million to $800 million.
Tax-exempt municipal money market funds saw inflows as $1.11 billion was added the week ending April 1, bringing the total assets to $122.24 billion, according to the Money Fund Report, a weekly publication of EPFR.
The average seven-day simple yield for all tax-free and municipal money-market funds rose to 3.29%.
Taxable money-fund assets saw $50.53 billion added to end the reporting week.
The average seven-day simple yield for all taxable reporting funds remained at 5.01%.
The SIFMA Swap Index, meanwhile, remained at 3.64% Wednesday compared to the previous week. This is up 19 basis points from two weeks ago when it was at 3.45%.
AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.34% and 3.11% in two years. The five-year was at 2.68%, the 10-year at 2.63% and the 30-year at 3.78% at 3 p.m.
The ICE AAA yield curve was bumped one to two basis points: 3.34% (-2) in 2025 and 3.12% (-1) in 2026. The five-year was at 2.71% (-1), the 10-year was at 2.67% (-1) and the 30-year was at 3.76% (-1) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 3.38% in 2025 and 3.12% in 2026. The five-year was at 2.69%, the 10-year was at 2.65% and the 30-year yield was at 3.77%, according to a 3 p.m. read.
Bloomberg BVAL was unchanged: 3.33% in 2025 and 3.10% in 2026. The five-year at 2.62%, the 10-year at 2.61% and the 30-year at 3.78% at 3:30 p.m.
Treasuries were slightly firmer.
The two-year UST was yielding 4.659% (-2), the three-year was at 4.471% (-2), the five-year at 4.307% (-3), the 10-year at 4.318% (-3), the 20-year at 4.579% (-3) and the 30-year at 4.474% (-4) at 3:30 p.m.