Another $2 billion-plus week of outflows, but munis steady ahead of jobs report

Municipals were mostly steady to a touch firmer Thursday amid a quiet secondary and few deals pricing in the primary while another $2 billion-plus flowed out of municipal bond mutual funds.

U.S. Treasuries saw more losses and equities ended in the red ahead of Friday’s much-anticipated jobs report.

Municipal to UST ratios fell on the day’s moves with the long bond reading below 100%. The three-year on Thursday was at 71%, the five-year was at 75%, the 10-year at 83% and the 30-year at 99%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the three at 72%, the five at 76%, the 10 at 86% and the 30 at 99% at a 4 p.m. read.

Refinitiv Lipper reported $2.056 billion of outflows from municipal bond mutual funds for the week ending Wednesday after $3.601 billion the week prior. High-yield saw outflows of $765.904 million after outflows of $1.038 billion the week prior while exchange-traded funds saw inflows of $1.202 billion after $295.838 million of outflows the previous week.

Coming off the day-to-day calendar, Goldman, Sachs & Co. priced for the California Earthquake Authority $500 million of taxable revenue bonds in the primary Thursday. Bonds priced at par: 5.393% in 7/2023, 5.493% in 2024, 5.603% in 2027, subject to a make whole call.

The primary market will see a mere $1.3 billion in the holiday-shortened week, the bulk of which will come from the New Jersey Turnpike Authority’s $500 million deal. Bond Buyer 30-day visible supply sits at $9.16 billion.

In economic data, U.S. jobless claims rose from five-month lows “but still supports the idea that the labor market remains strong,” said Ed Moya, senior market analyst at OANDA. Applications for unemployment insurance rose by 29,000 to 219,000 in the week ended Oct. 1, higher than the consensus estimate of 204,000, also snapping a 10-week streak of coming in below economist expectations.

“Signs that the labor market is quickly cooling will come from Corporate America,” Moya said. “This upcoming earnings season will give us a clear understanding of how quickly this economy is going to weaken.”

Moya noted that Minneapolis Fed President Neel Kashkari signaled there is no Fed pivot coming until financial conditions worsen significantly from here. Kashkari said the Fed will keep hiking rates to bring inflation and that they are “quite a ways away” from pausing their tightening cycle.

Informa: Money market muni see inflows
Tax-exempt municipal money market funds saw $1.24 billion of inflows the week ending Monday, bringing the total assets to $100.84 billion, according to the Money Fund Report, a publication of Informa Financial Intelligence.

The average seven-day simple yield for all tax-free and municipal money-market funds climbed 0.46% to 1.91%.

Taxable money-fund assets saw outflows of $19.80 billion to end the reporting week at $4.420 trillion of total net assets. The average seven-day simple yield for all taxable reporting funds rose to 2.56%.

Secondary trading Thursday
Maryland 5s of 2023 at 3.00%. Maryland 5s of 2024 at 3.01%-2.98%. New York City 5s of 2025 at 3.21%-3.19%. Wake County, North Carolina, 5s of 2025 at 3.05%. versus 3.07% Wednesday.

Loudoun County, Virginia, 5s of 2026 at 3.07%-3.06%. Washington 5s of 2027 at 3.17%-3.15%. District of Columbia 5s of 2027 at 3.14%-3.12%.

New York UDC PITs 5s of 2029 at 3.25% versus 3.47% original. California 5s of 2032 at 3.26%-3.25%.

Maryland 5s of 2035 at 3.48%-3.44%. Maryland 5s of 2036 at 3.48% versus 3.53% Wednesday.

Los Angeles DWP 5s of 2041 at 3.93%-3.70%. Texas waters 5s of 2047 at 4.06%-4.03% versus 4.07%-3.88% Wednesday and 4.45% original.

AAA scales
Refinitiv MMD’s scale was unchanged: the one-year at 2.95% and 2.97% in two years. The five-year at 3.02%, the 10-year at 3.18% and the 30-year at 3.74%.

The ICE AAA yield curve was little changed: 2.98% (unch) in 2023 and 3.02% (unch) in 2024. The five-year at 3.04% (-1), the 10-year was at 3.22% (-1) and the 30-year yield was at 3.75% (-1) at a 4 p.m. read.

The IHS Markit municipal curve was unchanged: 2.95% in 2023 and 2.97% in 2024. The five-year was at 3.06%, the 10-year was at 3.16% and the 30-year yield was at 3.75% at a 4 p.m. read.

Bloomberg BVAL was little changed: 2.94% (unch) in 2023 and 2.97% (unch) in 2024. The five-year at 3.03% (+1), the 10-year at 3.14% (unch) and the 30-year at 3.77% (unch) at 4 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.243% (+9), the three-year was at 4.260% (+9), the five-year at 4.061% (+9), the seven-year 3.959% (+9), the 10-year yielding 3.821% (+6), the 20-year at 4.079 (+3) and the 30-year Treasury was yielding 3.786% (+3) at the close.

Demand for New York City GOs
New York City said its sale of $1.35 billion of general obligation bonds garnered wide investor interest enabling underwriters to lower yields on the deal.

The issue was composed of $950 million of tax-exempt fixed-rate bonds and $400 million of taxable fixed-rate social bonds designated.

Proceeds of the tax-exempts will be used to fund capital projects while the taxables will fund affordable housing.

The taxable social bonds received a second party opinion from S&P Global Ratings affirming alignment of the bonds with the ICMA Social Bond Principles.

During the tax-exempt retail order period, the city received almost $690 million of orders of which over $490 million was usable. During the institutional order period, the city received about $6 billion of priority orders, making it over 13.1 times oversubscribed.

Strong investor demand for the tax-exempts resulted in yields being reduced two to seven basis points from 2024 through 2039 and by 11 to 15 basis points in 2040 to 2046. Final yields ranged from 3.12% in 2024 to 4.39% in 2047.

The tax-exempts were priced by book-running lead manager Citigroup, with BofA Securities, J.P. Morgan Securities, Jefferies, Loop Capital Markets, Ramirez & Co., RBC Capital Markets, Siebert Williams Shank, and Wells Fargo Securities as co-senior managers.

For the taxable social bonds, the city received indications of interest totaling $1.88 billion, which made it 4.7 times oversubscribed. Of that total, more than $380 million from 10 investors were identified as being entered for social bond-specific accounts.

Given investor demand for the taxables, the yield was cut 10 basis points to 5.263% for the term bond maturing in 2052.

The proceeds of the sale of the taxable social bonds will be dedicated solely to reimburse city spending on affordable housing projects, supporting the creation of over 3,000 homes under the NYC Department of Housing Preservation and Development’s Extremely Low- and Low-Income Affordability program, Supportive Housing Loan Program and Senior Affordable Rental Apartments.

The taxables were underwritten by lead managers Citigroup and Morgan Stanley.

Mutual fund details
Refinitiv Lipper reported $2.056 billion of outflows for the week ending Wednesday following $3.601 billion of outflows the previous week.

Exchange-traded muni funds reported inflows of $1.202 billion after outflows of $295.838 million in the previous week. Ex-ETFs, muni funds saw outflows of $3.259 billion after outflows of $3.305 billion in the prior week.

Long-term muni bond funds had outflows of $1.190 billion in the latest week after outflows of $2.413 billion in the previous week. Intermediate-term funds had outflows of $536.613 million after outflows of $586.090 million in the prior week.

National funds had outflows of $1.689 billion after outflows of $3.183 billion the previous week while high-yield muni funds reported outflows of $765.904 million after outflows of $1.038 billion the week prior.

Chip Barnett contributed to this report.