The secondary market showed lighter trading and steady yields Thursday as the last deals of size priced and muni mutual funds saw small inflows. U.S. Treasuries were slightly weaker and equities were mixed near the close.
The day's moves showed muni-to-UST ratios holding mostly steady.
The two-year muni-to-Treasury ratio Thursday was at 64%, the three-year at 66%, the five-year at 67%, the 10-year at 66% 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 65%, the three-year at 66%, the five-year at 67%, the 10-year at 67% and the 30-year at 85% at 3:30 p.m.
Munis have recovered "pretty well" relative to USTs in June, noted Jeff Timlin, a partner at Sage Advisory.
The muni market will take its cues from the UST market, but muni yields will either be exacerbated by fund flows or mitigated "a little bit" if yields sell off, he noted.
"June kicked off with strong momentum, buoyed by a deep valuation supply concession, a rally in municipals, and gains in treasuries fueled by reports indicating the U.S. economy is tipping," said James Pruskowski, chief investment officer at 16Rock Asset Management.
However, he noted a "sharp technical reversal" in munis is already happening.
New-issue supply typically falls in July, while reinvestment demand surges, Pruskowski said.
Despite this, a "wave of new capital" will enter munis "alongside a subtle regime shift in treasury rates," he said.
Overall, 2024 is en route to "setting records" for issuance, with key drivers including the November presidential election, the end of the fiscal year for 46 states in June, and higher financing level concerns, Pruskowski said.
Steve Shutz, portfolio manager and director of Tax-Exempt Fixed Income at Brown Advisory, echoed this, noting June's first week bringing a whopping $16 billion, the largest weekly total since December 2021.
If yields fall further, there could be an increase in borrowing, Timlin noted.
"As rates rose, there was a pullback in terms of what issuers wanted to come market with," Timlin said, noting that if issuers had to tap the debt market, they did.
However, he said there is still a lot of "voter-approved debt" that still needs to be issued.
Therefore, any pullback or decline in rates will incentivize issuers to come to market.
Of the deals coming to market, there has been less demand in five- to 10-year part of the curve, Shutz said.
"Buyers generally don't want to accept a lower yield for more duration," he noted,
Meanwhile, the 20-year "in the sweet spot where the curve starts to recede, then you have to roll down benefits, and you're not having to go all the way out to 30 years," Shutz said.
"Deals are being relatively well-subscribed for and then credit-oriented ones are seeing robust oversubscription," he said.
Mutual funds seem to be "picking up," Shutz said.
Municipal bond mutual funds saw small inflows as investors added $16.4 million to the funds after $154.4 million of inflows the week prior, according to LSEG Lipper. Inflows were again led by long-term funds.
High-yield continued to show strength, with inflows of $248.9 million after $201.7 million of inflows the previous week.
Meanwhile, the Investment Company Institute reported Thursday $110 million of inflows from municipal bond mutual funds for the week ending June 12 following $587 million of outflows the week prior.
Exchange-traded funds saw larger inflows, though, at $458 million, following inflows of $795 million the week prior.
Despite the inflows, there has not been a "snapback" market participants expected at the end of last year, Shutz said.
Rates were "trending higher" for most of 2023 before moving "sharply lower" in the fourth quarter of last year, he noted.
Most of the inflows into muni mutual funds have come from long-term funds, Shutz said.
"Investors and retail investors who are ultimately buying these funds are saying, 'This is a pretty good opportunity to lock in some of these longer yields,'" he said.
Mutual funds should continue to grow as the year progresses, according to Shutz.
If and when the Fed starts cutting rates that would be a positive for performance, thus helping fund flows, he said.
In the primary market Thursday, BofA Securities priced for Raleigh, North Carolina, (Aa2/AA+/AA+/) $194.76 million of limited obligation bonds, Series 2024, with 5s of 10/2024 at 3.27%, 5s of 2029 at 2.95%, 5s of 2034 at 2.98% and 5s of 2039 at 3.18%, callable 10/1/2034.
BofA Securities priced for the Indiana Finance Authority (/AAA/AAA/) $175 million of green State Revolving Fund Program bonds, Series 2024A, with 5s of 2/2030 at 2.88%, 5s of 2034 at 2.92%, 5s of 2039 at 3.19% and 5s of 2044 at 3.64%, callable 2/1/2034.
In the competitive market, the Port of Seattle (Aaa/AA/AA-/) sold $94.695 million of non-AMT limited tax GO refunding bonds, Series 2024A, to BofA Securities, with 5s of 6/2025 at 3.19%, 5s of 2029 at 3.05%, 5s of 2034 at 3.04%, 5s of 2039 at 3.35% and 4s of 2040 at 3.80%, callable 6/1/2034.
The issuer also sold $65.745 million of AMT limited tax GOs, Series 2024B, to Truist Securities with 5s of 6/2043 at 3.95%, 5s of 2044 at 4.00% and 5s of 2049 at 4.20%, callable 6/1/2034.
Additionally, the Port of Seattle sold $95.775 million of taxable limited tax GOs, Series 2024C, to Truist Securities, with all bonds pricing at par: 5.2s of 6/2025, 4.4s of 2029, 4.65s of 2034, 4.9s of 2039 and 5.05s of 2042, callable 6/1/2034.
AAA scales
Refinitiv MMD's scale was unchanged: The one-year was at 3.09% and 3.05% in two years. The five-year was at 2.85%, the 10-year at 2.79% and the 30-year at 3.69% at 3 p.m.
The ICE AAA yield curve was cut up to one basis point: 3.14% (+1) in 2025 and 3.07% (+1) in 2026. The five-year was at 2.87% (+1), the 10-year was at 2.82% (+1) and the 30-year was at 3.67% (unch) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 3.14% (unch) in 2025 and 3.08% (unch) in 2026. The five-year was at 2.85% (unch), the 10-year was at 2.82% (+1) and the 30-year yield was at 3.68% (unch) at 3 p.m.
Bloomberg BVAL was little changed: 3.14% (unch) in 2025 and 3.09% (unch) in 2026. The five-year at 2.88% (unch), the 10-year at 2.80% (unch) and the 30-year at 3.71% (+1) at 3:30 p.m.
Treasuries were weaker.
The two-year UST was yielding 4.729% (+2), the three-year was at 4.462% (+3), the five-year at 4.267% (+3), the 10-year at 4.253% (+3), the 20-year at 4.499% (+4) and the 30-year at 4.391% (+4) at 3:45 p.m.
