Municipals were mixed as were U.S. Treasuries while Refinitiv Lipper reported $3.3 billion of outflows, the highest since March 2020.
Muni to UST ratios were at 78% in five years, 87% in 10 years and 99% in 30, according to Refinitiv MMD's 3 p.m. read. ICE Data Services had the five at 77%, the 10 at 89% and the 30 at 101% at 4 p.m.
Investors pulled more from municipal bond mutual funds in the latest week, with Refinitiv Lipper reporting $3.247 billion of outflows, up from $2.038 billion of outflows in the previous week.
Matt Fabian, a partner at Municipal Market Analytics, noted that
“And, absent a reversal of mutual fund flows, that’s highly unlikely to happen," he said, adding that outflows have led to more than 3% of aggregate mutual fund holdings lost since Dec. 31.
In contrast, the $43 billion in outflows from 2020 in just six weeks amounted to nearly 5% of the fund's assets under management at the time, according to Fabian.
At some point, he said, fund flows will return to positive but how and when is unclear. Until then, non-fund buyers are driving demand and printing more traditional features into the primary market. This means somewhat wider credit spreads, smaller secondary price breaks and a renewed preference for defensive coupon and maturity structures.
In the primary Thursday, Ramirez & Co. priced for El Paso, Texas, (/AA+/AA+/) $306.030 million of water and sewer revenue improvement and refunding bonds, Series 2022. Bonds in 3/2023 with a 5% coupon yield 1.81%, 5s of 2027 at 2.31%, 5s of 2032 at 2.70%, 5s of 2037 at 2.95%, 5s of 2042 at 3.07%, 5s of 2046 at 3.17% and 5s of 2052 at 3.23%, callable 3/1/2031.
PNC Capital Markets priced for the Florida Development Finance Corp. (/BBB//) $114.405 million of Mater Academy Projects educational facilities revenue bonds, Series 2022A. Bonds in 6/2025 with a 5% coupon yield 2.85%, 5s of 2027 at 3.05%, 5s of 2032 at 3.51%, 5s of 2037 at 3.65%, 5s of 2042 at 3.73%, 4s of 2042 at 4.10%, 5s of 2047 at 3.86%, 5s of 2052 at 3.95%, 4s of 2052 at 4.20% and 5s of 2056 at 4.04%, callable 6/15/2027.
Secondary trading
Florida 5s of 2023 at 1.74%-1.73%. New York City 5s of 2024 at 2.06%-2.03%. California 5s of 2024 at 2.01%-1.95%. Georgia 5s of 2025 at 1.99%. New York City 5s of 2025 at 2.13% versus 2.19% Wednesday.
Maryland 5s of 2026 at 2.11%-2.08%. NYC Municipal Water Finance Authority 5s of 2026 at 2.11% versus 2.14% Wednesday. California 5s of 2027 at 2.27% versus 2.16%-2.04% Wednesday and 2.15% Tuesday.
Georgia 5s of 2033 at 2.43% versus 2.31%-2.32% on 3/30. LA DPW 5s of 2033 at 2.57% versus 2.60%-2.58% Wednesday, 2.39%-2.28% Monday and 2.60%-2.48% on 3/30.
NYC TFA 5s of 2036 at 2.94%-2.95%. Dorm PIT 5s of 2037 at 2.96%-2.97%.
Triborough Bridge and Tunnel Authority 5s of 2051 at 3.32%-3.31% versus 3.14%-3.00% Tuesday, 3.19%-3.20% Monday and 3.14% on 3/31. NYC Municipal Water Finance Authority 5s of 2052 at 3.25%-3.26% versus 3.01% Monday and 3.25%-3.24% on 3/28.
AAA scales
Refinitiv MMD’s scale was unchanged at the 3 p.m. read: the one-year at 1.69% (unch) and 1.89% in two years (unch). The five-year at 2.10% (unch), the 10-year at 2.32% (unch) and the 30-year at 2.67% (unch).
The ICE municipal yield curve was cut two to six basis points: 1.64% (+3) in 2023 and 1.94% (+2) in 2024. The five-year at 2.10% (+4), the 10-year was at 2.36% (+4) and the 30-year yield was at 2.73% (+5) in a 4 p.m. read.
The IHS Markit municipal curve was cut up to two basis points: 1.67% (unch) in 2023 and 1.89% (unch) in 2024. The five-year at 2.14% (+2), the 10-year at 2.32% (+2) and the 30-year at 2.70% (unch) at a 4 p.m. read.
Bloomberg BVAL was cut up to one points: 1.66% (unch) in 2023 and 1.90% (unch) in 2024. The five-year at 2.14% (unch), the 10-year at 2.36% (unch) and the 30-year at 2.69% (+1) at a 4 p.m. read.
Treasury yields rose on the long end.
The two-year UST was yielding 2.465%, the three-year was at 2.659%, five-year at 2.700%, the seven-year 2.725%, the 10-year yielding 2.655%, and the 30-year Treasury was yielding 2.648 at a 3:30 p.m. read.
Economy
After the Federal Open Market Committee minutes showed a desire to raise interest rates by 50 basis points one or more times in the future, Federal Reserve Bank of St. Louis President James Bullard said Thursday a 3% to 3.25% fed funds rate target by yearend remains his preference.
At the
In prepared text, Bullard said, using a Taylor-type rule gives a 3.5% recommended policy rate.
Of course, the market is concerned about recession.
“The risk that inflation will get so ugly that the Fed will have to send the economy into a recession is now becoming a base case scenario for some traders,” said Edward Moya, senior market analyst at OANDA.
But analysts don’t agree with those traders.
“We think such fears are overdone in the near term,” said Luigi Speranza, chief global economist at BNP Paribas. “While the economic data are likely to deteriorate, the economy should withstand the shock thanks to the healthy balance sheets of its private sector.”
Yield curve inversion, he said, is the primary driver of recession concerns. But “in the absence of a further dramatic escalation of the Russia/Ukraine conflict, its impact on sentiment and prices combined with the effect of tighter monetary conditions will slow but not derail the U.S. recovery,” Speranza said. “Economic data are likely to deteriorate but concern over an imminent recession is overdone in our view.”
But despite the Russian invasion of Ukraine, James Solloway, chief market strategist at SEI, said, “the Fed and other central banks have no choice but to transition from supporting economic growth with extremely expansive monetary policies to fighting inflation with higher interest rates and quantitative tightening.”
While growth will slow next year, he said, that was expected before the conflict in Ukraine. “The odds of recession will climb beyond next year, however, as global interest rates adjusted for inflation rise and the financial positions of households and business deteriorate.”
And stagflation may occur, with the possibility of such an occurrence the highest since the 1970s, Solloway said.
However, Wells Fargo Investment Institute Senior Global Market Strategist Scott Wren said, “similarities to 1970s stagflation are not as strong as the current longer-term trends.”
The labor market is strong, he said, and inflation will decline “as external shocks such as the supply-chain disruption and Ukraine situation eventually subside.”
And, while price pressures won’t be as low as just before the pandemic, Wren said, “we think inflation will fall back to levels we see as historically moderate.”
Mutual funds see outflows
In the week ended April 6, weekly reporting tax-exempt mutual funds saw investors pull more money out with Refinitiv Lipper reporting $3.247 billion of outflows Thursday, following an outflow of $2.038 billion the previous week.
Exchange-traded muni funds reported inflows of $433.995 million after inflows of $372.255 million in the previous week. Ex-ETFs, muni funds saw outflows of $3.681 billion after $2.410 billion of outflows in the prior week.
The four-week moving average widened to negative $2.231 billion from negative $1.584 billion from in the previous week.
Long-term muni bond funds had outflows of $2.354 billion in the last week after outflows of $1.008 billion in the previous week. Intermediate-term funds had outflows of $566.054 million after $583.351 million of outflows in the prior week.
National funds had outflows of $2.788 billion after $1.727 billion of outflows the previous week while high-yield muni funds reported $1.028 billion of outflows after $485.719 million of outflows the week prior.
Informa: Money market muni assets, yields rise
Tax-exempt municipal money market fund assets added $3.21 million, bringing it up to $89.19 billion for the week ending April 5 according to the Money Fund Report, a publication of Informa Financial Intelligence.
The average seven-day simple yield for the 148 tax-free and municipal money-market funds rose from 0.013% to 0.014%.
Taxable money-fund assets lost $18.14 billion, bringing total net assets to $4.423 trillion in the week ended March 29. The average seven-day simple yield for the 774 taxable reporting funds rose from 0.09% to 0.10%.
