Munis poised to end December in the black

Municipals were thinly traded and benchmark yields little changed while U.S. Treasuries were a tick better on the 10- and 30-year and equities continued their march upward.

Triple-A benchmarks were left unchanged and ratios were also little changed. The five-year was at 47%, 70% in 10 and 78% in 30, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 46%, the 10 at 71% and the 30 at 79%.

Municipals are poised to end in the black with the Bloomberg Municipal Index at positive 0.11% for the month and plus-1.47% for all of 2021. High-yield has returned 0.19% in December and 7.29% for the year while taxable munis have seen losses of 1% in December and in the black at 0.84% for 2021. Bloomberg’s new Municipal Impact Index has returned 0.19% in December and 1.77% for the year.

Refinitiv Lipper reported $1.116 billion of inflows into municipal bond mutual funds with $439 million of that into high-yield in the latest reporting week. Exchange-traded funds saw $547.352 million of inflows.

Until supply comes, market participants appear to be content to sit back and let the calendar flip to a new year without making any moves.

Issuers are beginning to fill the calendar in January, according to filings with MuniOS. Among the larger deals to be scheduled, the Department of Airports of the City of Los Angeles, California, is set to price $503.31 million of Los Angeles International Airport subordinate revenue bonds, with $346.215 million of private activity and alternate minimum tax bonds and $157.095 million of governmental purpose bonds the first week of January.

Greenwich, Connecticut, is set to sell $40 million of general obligation bonds and $75 million of general obligation bond anticipate notes in the competitive market next week.

Coming up on the second week of the New Year, Louisiana is set to price $651.035 million of taxable gasoline and fuels tax revenue refunding bonds and a to be determined amount of tax-exempt gasoline and fuels tax revenue refunding bonds. The issuer plans to offer to tender $584.985 million of gasoline and fuels tax revenue refunding bonds, 2015 Series A, giving bondholders until Jan. 7.

Net negative supply is at $12.588 billion, according to Bloomberg data while 30-day visible supply sits at $3.886 billion.

Secondary trading was sparse. New York EFC 5s of 2022 at 0.11%. North Carolina 5s of 2023 at 0.21%-0.20%. Maryland 5s of 2023 at 0.23%. Massachusetts 5s of 2024 at 0.34% (0.35%-0.34% on 12/17). Georgia 5s of 2025 at 0.40% (0.41% on 12/16). California 5s of 2026 at 0.63%-0.61%.

North Carolina 5s of 2028 at 0.82%. Minnesota 5s of 2030 at 1.01%. Florida 5s of 2031 at 1.11%. Massachusetts clean water 5s of 2039 at 1.38%-1.32%.

Refinitiv Lipper reports $1.116B inflow
In the week ended Dec. 22, weekly reporting tax-exempt mutual funds saw $1.116 billion of inflows, Refinitiv Lipper said Thursday. It followed an inflow of $803.635 million in the previous week.

Exchange-traded muni funds reported inflows of $547.352 million, after inflows of $478.797 million in the previous week. Ex-ETFs, muni funds saw inflows of $569.247 million after inflows of $285.042 million in the prior week.

The four-week moving average increased to $680.020 million, from $580.813 million in the previous week.

Long-term muni bond funds had inflows of $1.215 billion in the latest week after inflows of $682.494 million in the previous week. Intermediate-term funds had inflows of $112.592 million after inflows of $76.268 million in the prior week.

National funds had inflows of $1.078 billion after inflows of $749.242 million while high-yield muni funds reported inflows of $438.827 million in the latest week, after inflows of $482.915 million the previous week.

New Year, new Fed
With the ending of asset purchases and expectations of liftoff from near zero rates, the Federal Reserve will play a central role in the markets next year.

But in some ways it will be a different Fed panel. President Biden has three spots to fill.

Pending Senate confirmation, Chair Jerome Powell will stay in place and Gov. Lael Brainard will be elevated to vice chair, replacing Richard Clarida. Randal Quarles will leave the Board this week.

Additionally, the annual rotation of voters on the Federal Open Market Committee means current voters, Thomas Barkin, president of the Richmond Fed, Atlanta’s Raphael Bostic, San Francisco’s Mary Daly and Chicago’s Charles Evans will be replaced by Cleveland’s Loretta Mester, St. Louis’ James Bullard, Kansas City’s Esther George and whomever becomes Boston Fed president, and until a new president is named, interim president Kenneth Montgomery will vote.

The belief is Biden will look to fill the empty spots with doves, and perhaps people with a social agenda who may seek to expand the Fed’s mandate beyond price stability and maximum employment to include climate change and equality.

“There are lots of open chairs” on the Fed Board and Biden is likely to try to fill them with “doves or über doves,” and if he succeeds, it will be harder to get rate hikes implemented, said Wells Fargo Investment Institute President Darrell Cronk in an outlook presentation in early December.

“The dollar has gone up,” he added, “which is doing some of the Fed’s tightening.”

And while the Fed now projects three rate hikes in 2022, slower inflation and economic growth next year could curb the Fed’s enthusiasm for “tightening policy, particularly if we see a sharp financial market correction or some shock that threatens the expansion,” JPMorgan Funds Chief Global Strategist David Kelly and market insights research analyst Stephanie Aliaga said earlier this month. “Fed members have displayed their dovish feathers too often at this stage for us to mistake them for a flock of hawks.”

The week is light on data and no Fed officials are speaking. But, Monday did bring the release of the Dallas Fed’s manufacturing survey, which showed “above-average growth” in the sector in December, although some indexes fell from November.

“Despite continued supply-chain and labor challenges, expansion in the Texas manufacturing sector continued at an impressive clip this month, though price and wage pressures remained highly elevated,” said Dallas Fed senior business economist Emily Kerr.

“Texas firms saw strong price and wage increases in 2021 and expect elevated pressures in 2022 as well,” she said. “A majority of firms say they are able to pass at least some of those cost increases on to customers, though only about 11% are able to fully pass them on. When asked about factors restraining revenues, business executives primarily cited staffing shortages and supply-chain disruptions.”

The general business activity index fell to 8.1 in December from 11.8 in November, but at the company level, rose to 8.6 from 1.3. The production index slipped to 26.7 from 27.4. Prices paid dropped to 66.2 from 82.1, while prices received crept to 42.3 from 42.2.

The wages and benefits index dipped to 45.5 from 47.6, while the employment index gained to 30.9 from 28.5.

Looking ahead six months, the general business activity index plunged to 14.0 from 28.6, while the company outlook index dropped to 10.3 from 17.3.

AAA scales
Refinitiv MMD’s scale was unchanged: the one-year at 0.14% and 0.24% in 2023. The 10-year sat at 1.03% and at 1.48% in 30.

The ICE municipal yield curve showed yields were little changed: 0.15% in 2022 and 0.28% in 2023. The 10-year steady at 1.04% and the 30-year yield at 1.49%.

The IHS Markit municipal analytics curve was steady: 0.16% in 2022 and to 0.25% in 2023. The 10-year at 1.01% and the 30-year at 1.48% as of a 3 p.m. read.

Bloomberg BVAL was unchanged: 0.17% in 2022 and 0.22% in 2023. The 10-year was at 1.04% and the 30-year at 1.48%.

Treasuries were range-bound while equities improved again.

The five-year UST was yielding 1.252%, the 10-year yielding 1.482%, the 20-year at 1.924% and the 30-year Treasury was yielding 1.887% near the close. The Dow Jones Industrial Average gained 313 points, or 0.87%, the S&P was up 1.27% while the Nasdaq gained 1.28% near the close.