Municipals were mostly steady Wednesday as the largest deals of the week priced and the Investment Company Institute reported more than $1 billion of inflows into municipal bond mutual funds. U.S. Treasuries were little changed throughout most of the curve and equities ended down near the close.
The two-year muni-to-Treasury ratio Wednesday was at 63%, the three-year at 65%, the five-year at 66%, the 10-year at 70% and the 30-year at 87%, according to Refinitiv Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 64%, the three-year at 65%, the five-year at 66%, the 10-year at 71% and the 30-year at 88% at 3:30 p.m.
While muni yields were little changed Wednesday, yields have continued to drop since the start of summer, said Tom Kozlik, managing director and head of public policy and municipal strategy at HilltopSecurities.
However, he noted yields "are not as appealing as they once were this year, yet they remain near generationally attractive levels."
The Investment Company Institute reported $1.316 billion of inflows into municipal bond mutual funds for the week ending Aug. 21 after $762 million of inflows the week prior. Exchange-traded funds saw $243 million of inflows after $175 million of inflows the previous week.
The last time inflows topped $1 billion, per ICI data, was for the week ending Feb. 7 when muni mutual funds saw $1.555 billion of inflows.
LSEG Lipper has reported weeks with $1 billion plus inflows on July 31 and May 8.
Flows into muni mutual funds continue to "trickle in" but are still not close to the average amount of 2021 when inflows topped $100 billion in total for the year, according to Kozlik.
Munis continue to "show value" compared to corporates and Treasuries, said Cooper Howard, a fixed-income strategist at Charles Schwab.
The all-in tax rate "that would result in the same after-tax yield for munis and corporate bonds is slightly less than 35% which is near the lower end of the range over the past few years and below the average since the end of 2017," he said.
Additionally, the backdrop for credit conditions remains stable, leading Howard to believe munis can be an "attractive opportunity" for higher-tax bracket investors.
The yield curve should continue to steepen as the Fed cuts rates, but it is unclear if there will be a 25- or 50-basis-point rate cut at the September meeting, he said.
Federal Reserve Chairman Jerome Powell's Friday speech at Jackson Hole "
"What was most notable, wasn't what was said, it was what Chairman Powell [did not say]," he said.
Powell's speech did not mention that the pace of rate cuts will be "gradual," leaving room for a larger 50 basis point cut at next month's meeting, he said.
"The market will be closely watching jobless claims and PCE this week for signs that the labor market isn't softening too fast and inflation continues to trend lower," Howard said.
Volatility may be "elevated" as both reports happen before the Labor Day holiday and trading conditions will likely be "thin," he said.
In the primary market Wednesday, the final large deals of the week priced. Wells Fargo preliminarily priced for Chicago (//A+/) $996.03 million of Chicago O'Hare International Airport general airport senior lien revenue bonds. Final pricing details were not yet available. The first tranche, $555.305 million of AMT bonds, Series 2024A, saw 5s of 1/2036 at 3.92%, 5s of 2039 at 4.05%, 5.5s of 2044 at 4.21%, 5.25s of 2048 at 4.35%, 5.5s of 2053 at 4.40% and 5.5s of 2059 at 4.50%, callable 1/1/2034.
The second tranche, $440.725 million of non-AMT bonds, saw 5s of 1/2036 at 3.34%, 5s of 2039 at 3.52%, 5.25s of 2044 at 3.81%, 5s of 2048 at 4.07%, 5.25s of 2053 at 4.17% and 5.5s of 2059 at 4.20%, callable 1/1/2034.
J.P. Morgan preliminarily priced for San Antonio, Texas, (Aa2/AA-/AA-/) $760.19 million of electric and gas systems revenue refunding bonds. Final pricing details were not yet available. The first tranche, $489.495 million of Series 2024D, saw 5s of 2/2029 at 2.68%, 5s of 2033 at 3.01%, 5s of 2039 at 3.39%, 5s of 2044 at 3.76%, 5.25s of 2049 at 4.00%, 5s of 2049 at 4.05% and 5.25s of 2054 at 4.08%, callable 2/1/2035.
The second tranche, $274.27 million of Series 2024E, saw 5s of 2/2035 at 3.16%, 5s of 2039 at 3.39%, 5s of 2044 at 3.76% and 5.25s of 2049 at 4.00%, callable 2/1/2035.
Wells Fargo priced for the Utah Transit Authority $541.11 million of sales tax revenue refunding bonds. The first tranche, $419.945 million of Series 2024, (Aa2/AA+/AA/), saw 5s of 6/2030 at 2.59%, 5s of 2034 at 2.89%, 5s of 2039 at 3.27% and 5s of 2042 at 3.47%, callable 6/15/2034.
The second tranche, $121.165 million of subordinated bonds, Series 2024, (Aa3/AA/AA/), saw 5s of 6/2030 at 2.68%, 5s of 2032 at 2.88%, 5s of 2039 at 3.35% and 5s of 2040 at 3.40%, callable 6/15/2034.
Jefferies priced for the Texas Veterans Land Board (Aaa///) $135 million of taxable refunding veterans bonds, Series 2024A, with 5/375s of 12/2051 priced at par.
BofA Securities priced for the University of Kentucky (Aa3/AA//) $104.85 million of UK Healthcare Cancer Center Parking project lease purchase obligations, Series 2024, with 5s of 10/2025 at 2.73%, 5s of 2029 at 2.70%, 5s of 2034 at 3.12%, 5s of 2039 at 3.41%, 4s of 2044 at 4.04%, 5s of 2049 at 3.99% and 4.125s of 2054 at 4.32%, callable 10/1/2034.
AAA scales
Refinitiv MMD's scale was little changed: The one-year was at 2.51% (unch) and 2.45% (unch) in two years. The five-year was at 2.42% (unch), the 10-year at 2.69% (unch) and the 30-year at 3.58% (+1) at 3 p.m.
The ICE AAA yield curve was cut on bonds on 2033 and out: 2.54% (-3) in 2025 and 2.48% (unch) in 2026. The five-year was at 2.42% (unch), the 10-year was at 2.68% (+2) and the 30-year was at 3.61% (+2) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.57% (unch) in 2025 and 2.51% (unch) in 2026. The five-year was at 2.42% (unch), the 10-year was at 2.66% (unch) and the 30-year yield was at 3.56% (+1) at 3 p.m.
Bloomberg BVAL was little changed: 2.51% (unch) in 2025 and 2.46% (unch) in 2026. The five-year at 2.45% (unch), the 10-year at 2.68% (unch) and the 30-year at 3.59% (-1) at 3:30 p.m.
Treasuries were little changed.
The two-year UST was yielding 3.870% (-3), the three-year was at 3.731% (+1), the five-year at 3.666% (+1), the 10-year at 3.843% (+1), the 20-year at 4.225% (+1) and the 30-year at 4.133% (+1) at 3:30 p.m.
Competitive:
North Hempstead, New York, is set to sell $100.858 million of GO bond anticipation notes at 10:30 a.m. eastern Thursday.
