Municipals maintained a mostly steady tone to firmer by some accounts Thursday following the midday rise in U.S. Treasuries, but primary deals got done with some repricing to lower yields.
Refinitiv Lipper reported more inflows into municipal bond mutual funds to the tune of $592.4 million for week ended March 24 and high-yield funds reported $256 million, both lower than recent weeks.
Triple-A benchmarks were steady to firmer. Refinitiv MMD and ICE Data Services were unchanged top to bottom, while Bloomberg BVAL and IHS Markit showed some bumps in scales.
The $400 million Triborough Bridge & Tunnel Authority deal saw “very strong” demand from the buy side crowd and underwriters were expected to lower yields accordingly, a New York underwriter said.
“The market saw positive bond fund flows again this week, which provides some underlying support,” he said.
At the same time, the municipal market still remains expensive to Treasuries, which is keeping some investors on the sidelines, according to the underwriter.
Municipal to UST ratios were at 69% in 10 years and 74% in 30 on Wednesday, according to Refinitiv MMD, while ICE Data Services showed ratios at 67% in 10 years and 76% in 30.
“By the numbers it’s supposedly weaker, but I am seeing [munis] stronger across the board,” a New York portfolio manager said.
He cited such heavy demand that the over $10 billion on the primary market calendar expected this week is still not enough to keep up with demand.
“Anything in 2021 or 2022 may last a whole two seconds in the market before it's gone,” he said. As a result of the strong demand, the yields on both tax-exempt and taxable municipal bonds are “getting pretty close,” the portfolio manager said.
“I think the talk about tax increases is going to really impact the market and the government state money is like a wrapper on everything," he said.
In the primary, JP Morgan Securities LLC priced $400 million of general revenue bonds for the Triborough Bridge and Tunnel Authority (Aa3/AA-/AA-/AA). Bonds in 2051 with a 5% coupon yield 2.19%, 4s and 5s in a split 2056 maturity yield 2.41% and 2.29%, respectively.
Siebert Williams Shank & Co., LLC repriced $213.5 million of unlimited tax school building bonds for the Carrollton-Farmers Branch Independent School District, Texas (Aaa/AAA//). This deal was repriced with lower yields in some maturities. Yields were not repriced in 2021, two basis points lower 2026, two bps lower in 2031, seven basis points lower 2041, and no change in 2051. Bonds in 2021 with a 3% coupon yield 0.12%, 5s in 2026 yield 0.55%, 5s in 2031 yield 1.22%, 3s in 2041 at 1.77% and 2.25s in 2051 at 2.34%
RBC Capital Markets priced $223.3 million of revenue bonds for the Pennsylvania Economic Development Financing Authority as a conduit issuer for the University of Pittsburgh Medical Center (A2/A/A/ ). Bonds in 2022 with a 4% coupon yield 0.27%, 4s of 2026 at 0.81%, 5s of 2031 at 1.55%, 4s of 2041 at 2.24% and 4s of 2051 at 2.44%.
Meanwhile, the New York City Transitional Finance Authority’s $1.2 billion sale of future tax secured subordinate bonds achieved over $255 million in total debt service savings, with around $23 million and $232 million of debt service savings in fiscal 2021 and 2022, respectively, the TFA said on Thursday.
The deal saw refunding savings on a present value basis of nearly $247 million, or 17.1% of the refunded par amount.
The issue was comprised of $1 billion of tax-exempt fixed-rate bonds priced by Ramirez & Co. and $228 million of taxable fixed-rates sold competitively.
During the exempt retail order period, TFA said it received $593 million of orders, of which $564 million was usable. The institutional order period saw about $2.1 billion of priority orders, representing 4.7 times the bonds offered for sale.
The TFA also competitively sold $228 million of taxables in two offerings. JPMorgan Securities won the $159 million of bonds due 2022 through 2026. The sale attracted 11 bidders. BNY Mellon Capital Markets won the $69 million of bonds due 2032 through 2036. The sale attracted 13 bidders.
Secondary market
Trading was firmer in spots. New York City Transitional Finance Authority 5s of 2022 at 0.13%. New York City GOs, 5s of 2022 at 0.18%. NYC TFA 5s of 2023 at 0.23%.
Triborough Bridge and Tunnel Authority 5s of 2025 at 0.25%. Georgia GOs, 5s of 2027 at 0.67%. Wake County 5s of 2028 at 0.78%. California GOs, 5s of 2028 at 0.91%.
Mecklenburg County, North Carolina 5s of 2030 at 1.03%. New York City GOs, 5s of 2031 at 1.43%.
Ohio waters 5s of 2038 at 1.49% versus 1.54%-1.46% Tuesday.
NYC TFA 4s of 2046 at 2.30%-2.29% versus 2.41%-2.40%.
High-grade municipals were unchanged across the curve on Refinitiv MMD's scale. Short yields were at 0.09% in 2022 and 0.12% in 2023. The 10-year steady at 1.11% and the 30-year at 1.76%.
The ICE AAA municipal yield curve showed short maturities at 0.10% in 2022 and 0.15% in 2023. The 10-year at 1.09% and the 30-year yield steady at 1.76%.
The IHS Markit municipal analytics AAA curve showed yields one basis points lower at 0.08% in 2022 and fell one bps to 0.13% in 2023, the 10-year fell one to 1.04%, and the 30-year fell two to 1.71%.
The Bloomberg BVAL AAA curve showed yields fall one basis point to 0.08% in 2022 and one bp to 0.12% in 2023, while the 10-year fell one basis point to 1.06%, and the 30-year yield fell two to 1.75%.
The 10-year Treasury was at 1.61% and the 30-year Treasury was yielding 2.34% near the close, paring back midday losses. The Dow gained 190 points, the S&P 500 rose 0.54% and the Nasdaq lorosest 0.18%.
Refinitiv Lipper reports $592M inflow
In the week ended March 24, weekly reporting tax-exempt mutual funds saw $592.407 million of inflows. It followed an inflow of $1.267 billion in the previous week.
Exchange-traded muni funds reported inflows of $225.785 million, after inflows of $213.234 million in the previous week. Ex-ETFs, muni funds saw inflows of $366.622 million after inflows of $1.054 billion in the prior week.
The four-week moving average remained positive at $586.750 million, after being in the green at $448.069 million in the previous week.
Long-term muni bond funds had inflows of $513.229 million in the latest week after inflows of $1.200 billion in the previous week. Intermediate-term funds had inflows of $99.713 million after inflows of $111.568 million in the prior week.
National funds had inflows of $618.479 million after inflows of $1.255 billion while high-yield muni funds reported inflows of $256.058 million in the latest week, after inflows of $650.467 million the previous week.
Economy
Initial jobless claims fell to the lowest point since the pandemic began, while gross domestic product growth improved 0.2 percentage points from the previous estimates, both positive for the economy.
Jobless claims dropped to 684,000 on a seasonally adjusted annual basis in the week ended March 20 from a revised 781,000 a week earlier, the Labor Department reported Thursday.
The March 13 read was first reported as 770,000. Economists polled by IFR Markets expected 730,000 claims in the week.
"For the first time since the pandemic began, new claims for jobless benefits have dropped below the 700,000 level and this is likely a sign of even better things to come for the nation’s battered economy,” said Mark Hamrick, senior economic analyst at Bankrate. “More substantial improvement could be seen as soon as the forthcoming release of the March employment data, with a pickup in hiring amid the reopening of the economy and more people being vaccinated."
Daniel Zhao, senior economist and lead data scientist at Glassdoor said claims are trending in the “right direction” but he warned about expecting a quick rebound. “The fact that we are only now nearing a historical peak is a reminder that it's going to take a long time to dig out of the hole that the crisis put us in,” he said. It “is a grim milestone to hit almost exactly one year into the crisis.”
Continued claims decreased to 3.870 million in the week ended March 13 from an upwardly revised 4.134 million a week earlier, initially reported as 4.124 million.
Economists estimated 4.065 million continued claims for the week.
The four-week moving average fell to 736,000 in the week ended March 20 from an upwardly revised 749,000 a week earlier.
Real gross domestic product rose 4.3% in the fourth quarter of 2020, according to the third estimate released by the Commerce Department on Thursday.
The advance and preliminary estimates had shown a 4.1% gain. In the third quarter, GDP jumped 33.4%.
Economists had anticipated a 4.1% increase.
“The upward revision to first-quarter GDP centered mainly on inventories and that’s often considered a negative, because the increase isn’t the result of a true strengthening of demand,” according to Gary Schlossberg, global strategist, Wells Fargo Investment Institute. “However, supply chain disruptions are front and center now, so any increase in stocks of inputs and finished goods should be viewed as a positive in lubricating manufacturing growth and preventing the kind of severe disruptions now affecting the auto industry.”
The price index for gross domestic purchases gained 1.7% in the fourth quarter, after a 3.3% climb in the third quarter of 2020.
The PCE price index increased 1.5%, compared to a rise of 3.7% a quarter earlier. Excluding food and energy prices, the PCE price index increased 1.3%, after a 3.4% rise in the prior quarter.
This index is the Fed’s preferred measure of inflation.
Economists predicted core PCE to gain 1.4%.
“As for inflation, its slight downward revision as measured by the GDP deflator (the economy’s broadest price gauge) simply points up the fact that inflation continues to run well below the Fed’s target rate,” Schlossberg said. “Significantly, the consumer price component of that deflator was revised down to 1.5% from an earlier reported 1.6%, well below the Fed’s 2% target rate. That’s likely to change with accelerating consumer-price inflation over the course of the year as growth accelerates and pushes the economy back toward full capacity.”
Also, manufacturing activity in the Kansas City region “grew solidly” in the month of March, along with “positive expectations” for forward-looking activity.
“Regional factories continued to report solid growth in March,” said Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City. “Materials prices remain extremely high for most firms. However, many manufacturers have been able to pass through at least a portion of the price increases on to customers.”
Chip Barnett and Lynne Funk contributed to this report.
