Municipals faced some pressure Thursday as U.S. Treasuries saw losses amid geopolitical uncertainty and mixed macroeconomic data ahead of Friday's payrolls figure while equities were off near the close.
The last large new-issues priced in the primary and secondary trading pointed to some weakness, leading to small cuts to triple-A yield curves.
Municipal bond mutual funds saw inflows of nearly $1.9 billion in the latest week, marking the 14th consecutive week of inflows and the highest level of 2024, per LSEG data, reiterating the strong investor support for this market.
LSEG Lipper reported fund inflows of $1.879 billion for the week ending Wednesday, up from $592.1 million of inflows the prior week. This week's figure bumped up the four-week moving average to $1.119 billion from $877.31 million the previous week. High-yield funds saw inflows of $602.3 million, up from $349.3 million the week prior.
In terms of duration, J.P. Morgan strategists led by Peter DeGroot noted that inflows were again concentrated in long-term funds at positive $1.6 billion.
DeGroot said J.P. Morgan estimates the total projected reinvestment capital in October is front-loaded in the first half of the month. For the weekly period ending Wednesday, J.P. Morgan estimates that inflows were higher to the tune of $2.7 billion, of which open-end funds saw $2 billion of inflows and exchange-traded funds saw $700 million.
Despite
The issuance picture will not disappoint as Bond Buyer 30-day visible supply climbs to $15.29 billion.
While triple-A levels were cut by a basis point in spots Thursday, depending on the curve, munis outperformed USTs on the day, which saw yields rise by five to eight basis points.
Muni to UST ratios adjusted downward as a result. The two-year muni-to-Treasury ratio Thursday was at 61%, the three-year at 62%, the five-year at 63%, the 10-year at 66% and the 30-year at 83%, according to Refinitiv Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 63%, the three-year at 63%, the five-year at 63%, the 10-year at 68% and the 30-year at 84% at 3 p.m.
In the primary Thursday, J.P. Morgan Securities LLC priced for San Antonio, Texas, (Aa1/AA+/AA/) $265.075 million of water system junior lien revenue bonds, Series 2024B, with 5s of 5/2026 at 2.43%, 5s of 2029 at 2.36%, 5s of 2034 at 2.75%, 5s of 2039 at 3.08%, 5s of 2044 at 3.44%, 5s of 2047 at 3.64%, callable 11/15/2034.
In the competitive market, Alexandria, Virginia, (Aaa/AAA/AAA//) sold $114.555 million of GO capital improvement bonds to BofA Securities with 5s of 2025 at 2.54%, 5s of 2029 at 2.27%, 5s of 2034 at 2.54%, 5s of 2039 at 2.84%, 4s of 2044 at 3.67%, 3.875s of 2049 at 3.93%, and 4s of 2054 at 4.04%, callable 12/2034.
As market attention moves toward Friday's employment report, recent labor market data has "pointed to upside risks" around it, DeGroot said, noting specifically the ADP employment report, which showed private payrolls rose 143,000 in September, the strongest monthly gain since June.
"Since the start of the year the average absolute difference between first prints of the ADP estimate and the BLS estimate has been 63k, and the average absolute difference of revised prints has been 44k," DeGroot said. "We still forecast a 125,000 increase in NFP in September, though at the margin the ADP report does give a bit of upside risk."
"It seems odd that the curve would bearishly steepen on a report like this, likely underscoring the market's perception that the Fed's reaction function has shifted towards front-loading easing," he added.
AAA scales
Refinitiv MMD's scale was cut out long: The one-year was at 2.55% (unch) and 2.28% (unch) in two years. The five-year was at 2.27% (unch), the 10-year at 2.54% (unch) and the 30-year at 3.50% (+1) at 3 p.m.
The ICE AAA yield curve was cut a basis point in spots: 2.62% (+1) in 2025 and 2.29% (unch) in 2026. The five-year was at 2.26% (unch), the 10-year was at 2.56% (unch) and the 30-year was at 3.46% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut in spots: The one-year was at 2.56% (+2) in 2025 and 2.29% (unch) in 2026. The five-year was at 2.26% (unch), the 10-year was at 2.55% (unch) and the 30-year yield was at 3.46% (+1) at 4 p.m.
Bloomberg BVAL was cut: 2.60% (+1) in 2025 and 2.35% (unch) in 2026. The five-year at 2.31% (unch), the 10-year at 2.56% (unch) and the 30-year at 3.48% (unch) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 3.705% (+7), the three-year was at 3.618% (+7), the five-year at 3.626% (+7), the 10-year at 3.846% (+6), the 20-year at 4.243% (+5) and the 30-year at 4.182% (+5) at the close.
