February 28, 2024

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Mutual funds see small outflows overall, but HY sees inflows

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Mutual funds see small outflows overall, but HY sees inflows

Municipals were steady to a touch firmer in spots Thursday, more new-issues saw strong demand while small outflows returned to muni mutual funds. U.S. Treasuries were weaker, and equities ended up.

After four weeks of inflows into muni mutual funds, outflows returned, with LSEG Lipper reporting $121.1 million of outflows for the week ending Wednesday after $1.413 billion of inflows the week prior.

High-yield, though, saw inflows of $327.3 million after inflows of $638.7 million the week prior.

Triple-A yields were little changed to better a basis point or two while Treasuries saw yields rise by three to six basis points.

The two-year muni-to-Treasury ratio Thursday was at 61%, the three-year at 60%, the five-year at 58%, the 10-year at 58% and the 30-year at 82%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 62%, the three-year at 62%, the five-year at 60%, the 10-year at 60% and the 30-year at 82% at 3:30 p.m.

“Following an active issuance cycle, the market hasn’t so much hit a bottom as it has moved to unchanged from two weeks ago,” said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

That seems to have given bidders “greater confidence in what is now an apparent range trade.”

The last 10-day cycle in the 10-year MMD is 2.28%-2.46%, with current trading at the upper band, she said.

Despite higher yields, several recent new issues pointed to “solid demand,” she said.

Massachusetts saw an upsized deal of $659 million of GOs with the maximum 2044 maturity as 5s yielding 3.54% for a spread of +29/MMD, she said.

“That compares with the state’s January sale of 5s due 2044 coming at 3.48% or +35/MMD (the state’s average 20-year GO/MMD spread is 25 basis points over the last 12 months),” Olsan noted.

While the New York City Transitional Finance Authority’s $1 billion of tax-exempt future tax-secured subordinate bonds “are heavily allocated,” the authority bumped yields two to six basis points from 15 to 30 years, Olsan said.

This, she noted, is “a byproduct of a projected near-neutral in-state 30-day supply vs. redemption figure.”

In the primary market Thursday, BofA Securities priced for the University of Washington (Aaa/AA+//) $388.950 million of general revenue bonds. The first tranche, $218.935 million of new-issue bonds, Series 2024A, saw 5s of 4/2025 at 2.97%, 5s of 2029 at 2.48%, 5s of 2034 at 2.58%, 5s of 2039 at 3.07% and 5s of 2044 at 3.50%, callable 4/1/2034.

The second tranche, $170.015 million of refunding bonds, Series 2024B, saw 5s 7/2025 at 2.92%, 5s of 2029 at 2.48%, 5s of 2034 at 2.59%, 5s of 2039 at 3.07% and 5s of 2041 at 3.33%, callable 1/1/2034.

RBC Capital Markets priced and repriced for the Clifton Higher Education Finance Corp., Texas, (Aaa///) $216.580 million of PSF-insured International Leadership of Texas education revenue and refunding bonds, Series 2024A, with yields bumped one to 17 basis points from the preliminary pricing: 5s of 8/2025 at 3.17% (-2), 5s of 2029 at 2.88% (-3), 5s of 2034 at 2.98% (-7), 5s of 2039 at 3.45% (-16), 4s of 2044 at 4.15% (-5), 4.125s of 2049 at 4.32% (-12), and 4.25s of 2054 at 4.34% (-17).

In the competitive market, the Washington Suburban Sanitary District, Maryland, (Aaa/AAA/AAA/) sold $329 million of consolidated public improvement bonds of 2024 to Morgan Stanley, with 5s of 2025 at 2.94%, 5s of 2029 at 2.44%, 5s of 2034 at 2.47%, 5s of 2039 at 2.99%, 4s of 2044 at 3.84%, 4s of 2049 at 4.09% and 4s of 2053 at 4.11%.

Worcester, Massachusetts, (Aa3/AA-/AA/) sold $160 million of GO Municipal Purpose Loan of 2024 bonds, to J.P. Morgan, with 5s of 2025 at 2.97%, 5s of 2029 at 2.44%, 5s of 2034 at 2.49%, 4s of 2039 at 3.43%, 4s of 2044 at 3.89% and 4s of 2049 at 4.145%.

“What may be containing further rate leakage is that secondary bids wanteds volumes are well below what would be considered sustaining to existing inquiry,” Olsan said.

Bid wanted volume was down 24% in aggregate Wednesday, “falling 17-24% in the short and intermediate portion (0-20yr) of the curve while gapping lower by 39% in 20yrs and longer,” J.P. Morgan strategists said.

So far this year — and particularly in early February action — the daily bid list volume posted is $996 million, according to Bloomberg data. This is down 20% from last year’s average of $1.2 billion, Olsan noted.

Upcoming supply “leans heavily in Texas-related credits and prepaid gas issues, stranding more mainstream sectors of GOs and essential service credits — translation: firmer secondary bidsides in related bonds,” Olsan said.

The larger deals on tap include the Southeast Alabama Gas Supply District (A1///) with $815 million of Project No. 2 gas supply revenue refunding bonds; the Public Energy Authority with $682 million of gas supply revenue bonds; the Prosper Independent School District, Texas, with $400 million of GOs; and the Board of Regents of the University of Texas System with $375 million of revenue bonds.

For the remainder of the year, Tom Kozlik, managing director and head of public policy and municipal strategy at Hilltop Securities, who recently revised HilltopSecurities’ 2024 total issuance prediction from $330 billion to $420 billion, anticipates issuance at $35 billion a month. This, he said, is above the 10-year monthly average of $34 billion.

“If demand remains this level of issuance should continue to be absorbed with minimal problems,” he said.

Secondary trading
Ohio Water Development Authority 5s of 2025 at 2.90% versus 2.93% Wednesday. King County, Washington, 5s of 2025 at 2.84%-2.79%. Washington 5s of 2027 at 2.63%-2.61% versus 2.70% original on 1/30.

Connecticut 5s of 2028 at 2.57%. Michigan State Building Authority 5s of 2029 at 2.58%. NYC 5s of 2030 at 2.54%.

NY State Urban Development Corp. 5s of 2033 at 2.51% versus 2.53%-2.50% on 1/26. Triborough Bridge and Tunnel Authority 5s of 2034 at 2.55%-2.53%. NYC 5s of 2035 at 2.71% versus 2.70% Wednesday and 2.69%-2.71% Monday.

Massachusetts 5s of 2053 at 3.78%-3.79% versus 3.90%-3.86% on 1/30 and 3.95% on 1/29. Triborough Bridge and Tunnel Authority 5s of 2054 at 3.92% versus 3.91% Wednesday and 3.90%-3.92% Monday.

AAA scales
Refinitiv MMD’s scale was little changed: The one-year was at 2.97% (-2) and 2.73% (unch) in two years. The five-year was at 2.41% (unch), the 10-year at 2.43% (unch) and the 30-year at 3.57% (unch) at 3 p.m.

The ICE AAA yield curve was bumped up to two basis points: 2.99% (unch) in 2025 and 2.76% (-1) in 2026. The five-year was at 2.46% (-1), the 10-year was at 2.45% (-1) and the 30-year was at 3.54% (unch) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 3.00% in 2025 and 2.78% in 2026. The five-year was at 2.46%, the 10-year was at 2.46% and the 30-year yield was at 3.55%, according to a 3 p.m. read.

Bloomberg BVAL was little changed: 2.92% (unch) in 2025 and 2.77% (unch) in 2026. The five-year at 2.42% (unch), the 10-year at 2.49% (unch) and the 30-year at 3.60% (unch) at 3:30 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.455% (+3), the three-year was at 4.247% (+5), the five-year at 4.122% (+6), the 10-year at 4.165% (+6), the 20-year at 4.476% (+6) and the 30-year Treasury was yielding 4.367% (+5) at 3:30 p.m.