July 13, 2024

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Munis weaker, Refinitiv Lipper outflows hit $2.6B

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Munis weaker, Refinitiv Lipper outflows hit .6B

Municipals were weaker as mutual fund outflows continued, while U.S. Treasuries extended their selloff and equities ended in the red.

Triple-A yields rose one to three basis points, with the larger losses out long, while UST yields rose eight to 10 basis points across the curve.

Muni-UST ratios fell with the three-year at 65%, the five-year was at 68%, the 10-year at 75% and the 30-year at 90%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the three at 66%, the five at 70%, the 10 at 80% and the 30 at 92% at a 4 p.m. read.

Refinitiv Lipper reported $2.611 billion of outflows from municipal bond mutual funds for the week ending Wednesday after $2.262 billion the week prior.

High-yield saw outflows of $681.903 million after outflows of $420.449 million the week prior while exchange-traded funds saw outflows of $381.322 million after $842.334 million of inflows the previous week.

Munis are most reactive when USTs trade in a wider intra-day band, said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Various news cycle items out of the Fed and the United Kingdom are forcing U.S. rates higher, munis included, she said.

“Heavier bid list volume and mutual fund outflows have not been fully indicative of real demand in certain ranges along the curve,” she said.

Daily bid volume tops $1.5 billion par value “on the heels of multi-billion dollar weekly outflows,” she noted. On Wednesday, bids wanteds hit $2.24 billion and lists were elevated again Thursday.

Moreover, ownership may be “evolving in a sort of shuffling of the deck chairs,” according to Olsan.

“Over the last week, MSRB data bonds due out to three years and past 12 years have been more heavily bought by customers than bonds sold to dealers,” she said. “Conversely, maturities between 2025 and 2029 have been more actively traded by customers into dealer hands.”

Muni-UST ratios have fallen as the 10-year triple-A BVAL yield is at its tightest spread to the 10-year UST this year.

“Although specific credits serve as AAA inputs, most of the upper investment grade categories are trading with concessions of 10 basis points or more to those reference points,” she said.

“Massachusetts’ Aa1/AA state GO sale was finalized with the 5% due 2032 yielding 3.35% for a spread of +21/BVAL,” and “similar concessions can be found in AA-rated GOs, essential service bonds and 4% coupons,” she noted.

“As the current yield set has served to attract new commitments in recent weeks, relative value at the 80% mark in this range does remain a coveted target — in line with this year’s 84% AAA/UST average (the 30-year muni/UST average is 95%),” Olsan said.

“The curve slope has undergone a massive flattening this year and recent trends suggest demand pockets are developing in specific ranges,” she said.

Short-term munis have seen the curve flatten from a recent 60 basis points in the 1y5y curve to nine basis points now. The offset to the flattening is that absolute yields are about 75 basis points higher, she said.

“Approaching the 10-year range there has been a 15 basis point flattening from the recent average, with the 5y10y slope settling around 15 basis points,” she said. “High-grades in 10 years trading near 3.25% offer some extension benefit.”

Though coupon variety impacts the back half of the curve, generic 5s still “offer some extension justification,” she said.

“The 10y15y slope is near its flattest of 22 basis points (in from a recent wide of 38 basis points) but the 20y25y slope has reached its steepest level since the summer of 13 basis points,” Olsan said. “Tandem to those moves are that real yields between 15 and 20 years area sit about 75 basis points above the summer period.”

In the primary market Thursday, Citigroup Global Markets priced for the Ohio Housing Finance Agency (Aaa///) $150 million of non-AMT social Mortgage-Backed Securities Program residential mortgage revenue bonds, Series C, with all bonds pricing at par 3.1s of 3/2024, 3.6s of 3/2027, 3.65s of 9/2027, 4.3s of 3/2032, 4.35s of 2032, 4.7s of 9/2037, 4.95s of 9/2037, 4.95s of 9/2032, 5.15s of 9/2053 and 5.75s of 3/2054, callable 3/1/2032.

J.P. Morgan Securities priced for the Rhode Island Housing And Mortgage Finance Corporation (Aa1/AA+//) $128.460 million of homeownership opportunity bonds. The first tranche, $113.460 million of non-AMT social bonds, Series 78-A. saw all bonds price at par, 4s of 10/2030, 4.25s of 4/2032, 4.3s of 10/2032, 4.75s of 10/2037, 5s of 10/2042 and 5.15s of 10/2047, expect 5.5s of 10/2052 at 4.48%, callable 4/1/2032.

The second tranche, $15 million of taxables, Series 78-T, saw all bonds price at par: 4.81s of 4/2023, 5.26s of 4/2027, 4.31s of 10/2027 and 5.59s of 10/2030, noncall.

Informa: Money market munis see outflows
Tax-exempt municipal money market funds saw $2.87 billion of outflows the week ending Monday, bringing the total assets to $102.79 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 fell to 1.96%.

Taxable money-fund assets inflows of $8.56 billion to end the reporting week at $4.429 trillion of total net assets. The average seven-day simple yield for all taxable reporting funds rose to 2.66%.

Secondary trading
Montgomery County, Maryland, 5s of 2023 at 3.10%. Georgia 4s of 2025 at 3.19%. North Carolina 5s of 2025 at 3.09% versus 3.05% Monday.

California 5s of 2028 at 3.07%. Loudoun County, Virginia, 5s of 2029 3.13%. Washington 5s of 2031 at 3.31%-3.29%.

District of Columbia 5s of 2034 at 3.51%-3.50%. New York Dorm PIT 5s of 2036 at 4.03%.

AAA scales
Refinitiv MMD’s scale was cut two basis points out long: the one-year at 2.94% (unch) and 2.98% (unch) in two years. The five-year at 3.01% (unch), the 10-year at 3.16% (unch) and the 30-year at 3.81% (+2),

The ICE AAA yield curve was cut three basis points: 2.99% (+3) in 2023 and 3.03% (+3) in 2024. The five-year at 3.06% (+3), the 10-year was at 3.26% (+3) and the 30-year yield was at 3.85% (+3) at a 4 p.m. read.

The IHS Markit municipal curve was cut one to two basis points: 2.94% (+2) in 2023 and 2.98% (+2) in 2024. The five-year was at 3.03% (+1), the 10-year was at 3.17% (+1) and the 30-year yield was at 3.79% (+1) at a 4 p.m. read.

Bloomberg BVAL was cut one to three basis points: 2.98% (unch) in 2023 and 3.01% (unch) in 2024. The five-year at 3.05% (unch), the 10-year at 3.19% (+1) and the 30-year at 3.85% (+3) at 4 p.m.

Treasuries sold off.

The two-year UST was yielding 4.608% (+5), the three-year was at 4.648% (+8), the five-year at 4.445% (+9), the seven-year 4.358% (+9), the 10-year yielding 4.234% (+9), the 20-year at 4.493% (+9) and the 30-year Treasury was yielding 4.231% (+10) at the close.

Mutual fund details
Refinitiv Lipper reported $2.611 billion of outflows for the week ending Wednesday following $2.262 billion the previous week.

Exchange-traded muni funds reported outflows of $381.322 million after inflows of $842.334 million in the previous week. Ex-ETFs, muni funds saw outflows of $2.230 billion after outflows of $3.105 billion in the prior week.

Long-term muni bond funds had outflows of $1.468 billion in the latest week after outflows of $1.160 billion in the previous week. Intermediate-term funds had outflows of $246.159 million after outflows of $517.776 million in the prior week.

National funds had outflows of $2.252 billion after outflows of $1.895 billion the previous week while high-yield muni funds reported outflows of $681.903 million after outflows of $420.449 million the week prior.

Primary on Wednesday:
Morgan Stanley & Co. priced for Massachusetts $1.338 billion of general obligation bonds. The first tranche, $902.480 million of general obligation bonds consolidated loan of 2022, Series C, saw 5s of 10/2032 at 3.35%, 5s of 2037 at 3.73%, 5s of 2042 at 4.02%, 5.25s of 2047 at 4.18%, 5s of 2047 at 4.23%, 5.25s of 2052 at 4.26% and 5s of 10/2052 at 4.31%, callable 10/1/2032.

The second tranche, $435.40 million general obligation refunding bonds, Series A, saw 5s of 10/2029 at 3.17% and 5s of 2031 at 3.29%, noncall.

Morgan Stanley & Co. priced for Hawaii (Aa2/AA+//) $740 million of taxable general obligation bonds, Series GK, with 4.7s of 10/2023 at par, 4.838s of 2027 at par, 5.201s of 2032 at par, 6.1s of 10/2037 at 5.85% and 6.2s of 2041 at 5.98%, callable 10/1/2032.