Municipal yields rose Wednesday in both secondary trading and as seen in primary deals with wider spreads than recent levels while fund flows reported another round of large inflows into municipal bond mutual funds, a key player in propping up a portion of the market.
Triple-A benchmarks were one basis points higher in yield on the short end to five out longer as the theme of investors demanding more yield continued, pushing the 10-year above the 1% threshold.
Ratios crept higher as a result. The 10-year muni-to-UST ratio rose to 68% while the 30-year was at 72%, according to Refinitiv MMD. ICE Data Services had the 10-year muni-to-Treasury ratio at 66% and the 30-year at 71%.
Refinitiv MMD had the five-year at 57% and ICE pegged it at 56%.
One week ago when
Fund inflows continue to support the market with the Investment Company Institute reported $1.804 billion of inflows into municipal bond mutual funds for the week ending June 16 after $2.533 billion of inflows the week prior. Exchange-traded funds saw $841 million of inflows, up from $759 million the week prior.
Refinitiv Lipper's figures to be reported Thursday will be a better indication of investor sentiment toward the asset class as it reports week-of numbers.
In the primary market, Barclays Capital Inc. priced $300 million of Yale University revenue bonds for the State of Connecticut Health and Educational Facilities Authority (Aaa/AAA//) with bonds in 7/2035 with mandatory tender on 7/12/2024 yielding 0.375%, noncall, lower than the 0.45% in price talk Tuesday.
In the competitive market on Wednesday, the Georgia Road and Tollway Authority (Aaa/AAA//) sold $210.5 million of managed lane system guaranteed revenue bonds to TD Securities. Bonds in 2034 with a 4% coupon yield 1.38%, 4s of 2036 at 1.34%, 4s of 2041 at 1.53% and 4s of 2046 at 1.71%.
The authority also sold $115.3 million of managed lane system guaranteed revenue bonds to Citigroup Global Markets Inc. with 3s of 2047 at 1.93%, 3s of 2048 at 1.94%, 3s of 2049 at 1.95%, 3s of 2050 at 1.96% and 3s of 2051 at 1.97%.
Texas sold $144.25 million of college student loan general obligation AMT bonds to BofA Securities with 4s of 2025 at 0.59%, 5s of 2026 at 0.73%, 5s of 2031 at 1.24%, 5s of 2036 at 1.39%, 3s of 2041 at 1.92% and 3s of 2044 at 2.03%.
Secondary trading and scales
California 5s of 2022 traded at 0.17%. New York Dormitory Authority 5s of 2022 at 0.17% and 5s of 2023 at 0.21%. Baltimore County 5s of 2023 at 0.25%. North Carolina 5s of 2024 at 0.34%.
Arlington County, Virginia, 5s of 2032 traded at 1.16%.
High-grade municipals were weaker on all triple-A benchmarks on Wednesday. According to Refinitiv MMD's AAA, short yields were steady at 0.12% and at 0.16% in 2021 and 2022. The yield on the 10-year was up three basis points to 1.01% while the yield on the 30-year rose to 1.52%.
The ICE AAA municipal yield curve showed bonds steady in 2022 at 0.11% and 0.16% in 2023. The 10-year maturity rose two basis points to 1.00% and the 30-year yield rose two to 1.50%.
The IHS Markit municipal analytics AAA curve showed short yields steady at 0.13% and 0.16% in 2021 and 2022, respectively, with the 10-year up four to 1.01%, and the 30-year yield up four to 1.51%.
Bloomberg BVAL AAA curve showed short yields rise to 0.12% and 0.15% in 2021 and 2022, up one, with the 10-year four higher at 1.01% and the 30-year yield up four to 1.51%.
In late trading, the 10-year Treasury was yielding 1.49% and the 30-year Treasury was yielding 2.11%. Equities were down after days of large gains, with the Dow Jones losing 71 points, or 0.21%, the S&P 500 down 0.11% while the Nasdaq lost 0.41%.
Inflation, still
All eyes remain on inflation, and any Federal Reserve official who mentions it.
On Tuesday, Fed Chair Jerome Powell testified before the House and said the price increases that have occurred are higher than expected. Wednesday, Federal reserve Bank of Atlanta President Raphael Bostic acknowledged these temporary inflationary pressures will last longer than previously thought.
In an NPR interview, he said, these transitory factors could be in play for six to nine months rather than the two to three originally expected.
Also speaking Wednesday, Gov. Michelle Bowman said, “There is more to the recent rise in inflation than just these measurement issues. The impressive upswing in economic activity has played an important role as it has led to a number of supply chain bottlenecks and put upward pressure on prices for many goods.”
The situation should ease over time, she said.
Turning to employment, Bowman noted 10 million people remain jobless or have left the labor force. Despite increases in employment in goods production and sales, service-sector jobs haven’t recovered as much.
Today’s speakers, “did not exactly follow Fed Chair Powell’s lead in downplaying inflationary fears,” said Ed Moya, senior market analyst for the Americas at OANDA. “The Fed is still far away from substantial progress with the labor market, so Wall Street should not expect any tapering announcement until after summer is over.”
“Current inflation is largely transitory, and that the Fed won’t rush to a taper,” said Steven Oh, global head of credit and fixed income at PineBridge Investments. “Elevated inflation is transitory, driven by supply-chain bottlenecks, labor shortages, and related supply-demand imbalances that should work themselves out in the coming months — especially as fiscal stimulus begins to wind down. Inflation would then, we expect, reset toward a pre-pandemic baseline.”
In data released Wednesday, new home sales fell 5.9% in May to a 769,000 seasonally adjusted annual rate from a downwardly revised 817,000 a month earlier, but was up from 704,000 a year ago.
The April figure was originally reported as 863,000.
Economists polled by IFR Markets expected 875,000 sales.
The median sales price grew to $374,00 in May from $365,300 in April, while the average price climbed to $430,600 from $420,900.
“Prices remain elevated and that seems to be a consistent driver for persistent inflationary arguments,” OANDA’s Moya said.
But “sky-high inflation readings will not last,” said Doug Peta, chief U.S. investment strategist at BCA Research. “Supply bottlenecks affecting the prices of a wide range of goods will eventually ease.”
BCA expects growth “well above trend in 2021 and 2022 without triggering uncomfortably high inflation.”
The strong enough growth accompanied by accommodative policy should remain in place for up to a year, he predicts.
“The curves still point to declining long-term inflation after a near-term spike, however, as inflation is projected to fall in years 3 to 5 and then hold steady (TIPS) or rise slightly (CPI swaps) in years 6 to 10.”
Also released Wednesday, the current account deficit grew to $195.7 billion in the first quarter, its highest level in 14 years, from a downwardly revised $175.1 billion in the last quarter of 2020, and $114.8 billion in the first quarter of 2020.
The fourth quarter deficit was first reported as $188.5 billion.
Economists expected a $207.0 billion shortfall.
