Municipals were little changed to a touch softer Thursday and mutual funds saw small outflows, setting the month to end with losses. U.S. Treasury yields fell and equities were down near the end of the trading session.
Following
Absolute yields are "attractive in the context of the trading range over the past three years, recent underperformance versus taxable fixed-income, and our longer-term projections for lower rates this year," they noted.
The 2-5-10-30yr IG muni ratios have "cheapened considerably" compared to taxable fixed-income month-to-date, J.P. Morgan strategists said.
The two-year muni-to-Treasury ratio Thursday was at 68%, the three-year at 68%, the five-year at 69%, the 10-year at 68% and the 30-year at 84%, according to Refinitiv Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 67%, the three-year at 68%, the five-year at 67%, the 10-year at 68% and the 30-year at 83% at 3:30 p.m.
In the five- to 10-year part of the curve, ratios have reset the most, "while the 10yr spot is still more attractive in taxable municipals versus tax-exempts," J.P. Morgan strategists said.
Value can best be seen in the longest part of the tax-exempt market, "with ratios on 30yr AA tax-exempts closer to the middle of the trailing three-year range versus taxable municipals," they said.
Munis are "being set up nicely" as the summer season approaches, said Jeff Lipton, a research analyst and market strategist.
"Technicals can lend themselves to solid performance, even though year-to-date volume has been heavier than initially forecasted," he said.
Preliminary volume figures for May have issuance at $41.635 billion, up 39.2% from May 2023, according to LSEG data. The last time May issuance topped $40 billion was in 2016.
Muni issuance may "taper" ahead of the November election, Lipton noted.
As the summer progresses, reinvestment needs should grow, "setting the stage for a lot of flashing green," Lipton said.
This outlook will be supported by fund flows "with not only conventional allocations into mutual funds, but ETF and SMA deposits, in particular, should continue to be robust, and high-yield muni performance should favor generous returns," he said.
Following Wednesday's cuts, the Bloomberg Municipal Index turned negative, posting losses of 0.34% for May, -1.96% year to date; the High-Yield Index remained in the black at +0.62% in May, +1.51% YTD; Taxable Municipals at +0.85% MTD and -1.98% in 2024; and, Short Index at +0.31% in May and +1.09% YTD.
Retail continues to behave like "pushing out an iceberg," said Jim Robinson, CEO and CIO of Robinson Capital Management.
"You push, you push, you push, and you don't seem to be getting anywhere, but once something starts moving, good luck stopping it," he said.
Record inflows into muni mutual funds in 2020 and 2021 were followed by two years of massive outflows in 2022 and 2023.
After a "solid start to the year," inflows have turned more mixed in May ... leaving the market susceptible to weaker technicals and the pop in supply thus far this year," J.P. Morgan strategists said.
Municipal bond mutual funds saw a third week of outflows as investors pulled $89.4 million from the funds after
High-yield continued to show strength, though, with inflows of $69.8 million after $206.4 million of inflows the previous week.
"If the UST market rallies, fund flows will follow and tax-exempts will outperform," J.P. Morgan strategists said.
Fund flows will "probably get expedited should the Fed cut short-term interest rates," though Robinson is not hopeful that will happen anytime soon.
In the primary market Thursday, Morgan Stanley priced for the San Francisco Community College District (/AA//) $270 million of BAM-insured Election of 2020 GOs, Series B, saw 5s of 6/2025 at 3.45%, 5s of 2029 at 3.23%, 5s of 2034 at 3.32%, 5s of 2039 at 3.61%, 5s of 2044 at 3.98% and 5.25s of 2049 at 4.15%, callable 6/15/2034.
Raymond James preliminarily priced for the Fort Bend Independent School District, Texas, (/AAA/AAA/) $258.2 million of PSF-insured of unlimited tax school building and refunding bonds, Series 2024A, with 5s of 8/2025 at 3.51%, 5s of 2029 at 3.39%, 5s of 2034 at 3.43%, 5s of 2039 at 3.67%, 5s of 2044 at 4.01%, 4s of 2049 at 4.46% and 4.25s of 2054 at 4.54%, callable 8/15/2033.
BofA Securities priced for Greensboro, North Carolina, (Aa1/AAA//) $126.53 million of combined enterprise system revenue bonds. The first tranche, $25.16million of taxables, Series 2024A, with all bonds at par: 5.23s of 6/2025, 4.86s of 2029, 5.07s of 2034 and 5.14s of 2035, noncall.
The second tranche, $101.37 million of tax-exempts, Series 2024B, with 5s of 6/2035 at 3.25%, 5s of 2039 at 3.52%, 5s of 2044 at 3.89%, 5s of 2049 at 4.04% and 5s of 2054 at 4.16%, callable 6/1/2034.
Morgan Stanley priced for the Utah Board of Higher Education (Aa1/AA+//) $111.07 million of University of Utah general revenue bonds. The first tranche, $95.275 million of tax-exempts, Series 2024A-1, saw 5s of 8/2025 at 3.43%, 5s of 2029 at 3.27%, 5s of 2034 at 3.33%, 5s of 2039 at 3.55% and 5s of 2044 at 3.98%, callable 8/1/2034.
The second tranche, $10 million of tax-exempts, Series 2024A-2, saw 5s of 8/2029 at 3.27% and 5s of 2034 at 3.33%, noncall.
The third tranche, $5.795 million of taxables, Series 2024B, saw 5s of 8/2029 price at par, make whole call.
AAA scales
Refinitiv MMD's scale was little changed: The one-year was at 3.41% (unch) and 3.35% (unch) in two years. The five-year was at 3.14% (+1), the 10-year at 3.11% (+1) and the 30-year at 3.96% (unch) at 3 p.m.
The ICE AAA yield curve was cut up to two basis points: 3.40% (unch) in 2025 and 3.34% (+1) in 2026. The five-year was at 3.14% (+1), the 10-year was at 3.12% (+1) and the 30-year was at 3.93% (+1) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 3.44% in 2025 and 3.34% in 2026. The five-year was at 3.13%, the 10-year was at 3.09% and the 30-year yield was at 3.95%, according to a 3 p.m. read.
Bloomberg BVAL was little changed: 3.41% (+1) in 2025 and 3.34% (+1) in 2026. The five-year at 3.12% (unch), the 10-year at 3.09% (unch) and the 30-year at 3.95% (-1) at 3:30 p.m.
Treasuries were firmer.
The two-year UST was yielding 4.928% (-5), the three-year was at 4.744% (-5), the five-year at 4.573% (-6), the 10-year at 4.555% (-6), the 20-year at 4.768% (-6) and the 30-year at 4.686% (-5) at 3:30 p.m.
