While March has been historically a good time to buy municipal bonds, there are some caveats attached to this traditional axiom.
According to the Schwab Center for Financial Research, muni prices have declined more frequently in March than any other month, mostly probably because investors likely sold tax-exempts to pay tax bills. So investors looking to add munis to their portfolios may want to do it now because this seasonality presents an attractive entry point, Schwab said in a report released on Thursday.
But there are some things to bear in mind when investing this month.
“Be selective about the maturities of the bonds you buy,” said Cooper Howard, senior research analyst at the Schwab Center for Financial Research. “Yields relative to Treasuries declined further in February and are the lowest since late 2009. We suggest an average portfolio duration from five to eight-years because relative yields, are more attractive for longer-term munis compared to shorter-term.”
Howard said however that California general obligation bond buyers should be even more careful because short-term yields are very low at this time.
“An index of California [GOs] maturing between one- and three-years yields less than a AAA-rated index,” Howard said. “Since California is rated lower than AAA, investors considering short-term California GOs may be taking on more credit risk but earning less in yield.”
Secondary market
Municipal bonds were stronger on Thursday, according to the MBIS benchmark scale, with muni yields falling two basis points in the 10-year maturity and in the 30-year maturity. High-grade munis were also stronger, with yields falling two basis points in the 10-year maturity and four basis points in the 30-year maturity.
Investment-grade municipals were stronger on Refinitiv Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni falling three basis points while the yield on the 30-year muni dropped five basis points.
“Tax-exempt bond trading continued to get stronger on Thursday, led by the dollar-bond sector, as Treasuries maintained solid gains in the wake of the ECB's forward guidance shift and lower 2019 growth forecast,” said Greg Saulnier, research analyst at Refinitiv. Treasury bonds were stronger as stock prices fell.
The 10-year muni-to-Treasury ratio was calculated at 79.1% while the 30-year muni-to-Treasury ratio stood at 96.7%, according to MMD.
“The ICE Muni Yield Curve is 3.5 basis points lower in the long end. The high-yield sector is following suit with yields down 2 basis points to 3 basis points,” ICE Data Services said in a Thursday market comment. “Tobacco bonds are actively quoted today and are also 1 basis point to 2 basis points lower in yield, with moderate trading.”
Previous session's activity
The MSRB reported 44,407 trades on Wednesday on $44.407 billion of volume. California, New York and Texas were most traded, with the Golden State taking 12.757% of the market, the Empire State taking 11.591% and the Lone Star State taking 11.376%.
Primary market
Citigroup received the written award on California’s (Aa3/AA-/AA-) $2.29 billion of various purpose refunding and new-money GOs.
The refinancing will save taxpayers more than $1 billion in debt service costs over the next 19 years, or more than $739 million on a present value basis, according to California State Treasurer Fiona Ma.
“It’s a happy gift for all Californians and a huge win for California,” Ma said in a statement late Wednesday. “These savings, the most ever from a sale of state general obligation bonds, can be used to pay for other budget priorities of the Governor and Legislature. My office will continue to refinance the state’s existing debt to reduce debt service costs whenever possible.”
Ma said the state expects to sell GOs again on March 26 and April 11. According to the state bond calendar release last month, the state and two agencies will sell nine bond issues totaling about $6.34 billion this Spring.
Bond sales
Bond Buyer 30-day visible supply at $4.29B
The supply calendar fell $3.32 billion to $4.29 billion, which is composed of $2.81 billion of competitive sales and $1.48 billion of negotiated deals.
Muni money market funds see $1.26B inflow
Tax-free municipal money market fund assets increased $1.26 billion, bringing total net assets to $139.46 billion in the week ended March 4, according to the Money Fund Report, a service of iMoneyNet.com.
The average seven-day simple yield for the 190 tax-free and municipal money-market funds was unchanged from 1.30% last week.
Taxable money-fund assets gained $29.46 billion in the week ended March 5, bringing total net assets to $2.927 trillion. The average, seven-day simple yield for the 805 taxable reporting funds increased to 2.06% from 2.05% last week.
The combined total net assets of the 995 reporting money funds rose $30.72 billion to $3.067 trillion in the week ended March 5. It’s the ninth straight week total money-fund assets have been over $3 trillion.
Treasury auctions bills
The Treasury Department Thursday auctioned $60 billion of four-week bills at a 2.405% high yield, a price of 99.812944. The coupon equivalent was 2.450%. The bid-to-cover ratio was 2.88. Tenders at the high rate were allotted 40.52%. The median rate was 2.380%. The low rate was 2.350%.
Treasury also auctioned $35 billion of eight-week bills at a 2.400% high yield, a price of 99.626667. The coupon equivalent was 2.449%. The bid-to-cover ratio was 3.54. Tenders at the high rate were allotted 65.39%. The median rate was 2.390%. The low rate was 2.350%.
Treasury auctions announced
The Treasury Department announced these auctions:
- $16 billion 29-year 11-month 3% bonds selling on March 13;
- $24 billion 9-year 11-month 2 5/8% notes selling on March 12;
- $38 billion three-year notes selling on March 11;
- $39 billion 182-day bills selling on March 11; and
- $48 billion 91-day bills selling on March 11.
Gary Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
