Municipals were little changed as the primary took focus with two large deals from California and the Triborough Bridge and Tunnel Authority while mutual funds reported more outflows. U.S. Treasuries were weaker and equities ended in the black.
Outflows from municipal bond mutual funds receded as investors pulled $1.090 billion out of funds in the latest week, versus the $3.416 billion of outflows the prior week, according to Refinitiv Lipper data.
High-yield saw outflows of $539.623 million after $1.218 billion of outflows the week prior.
The two- and three-year muni-UST ratios are around 65% to 68%. The five-year was at 71%, the 10-year at 83% and the 30-year at 102%, according to Refinitiv MMD's 3 p.m. read. ICE Data Services had the five at 71%, the 10 at 87% and the 30 at 102% at a 4 p.m. read.
In the primary market Thursday, Barclays Capital priced for California (Aa2/AA-/AA/) $2.320 billion of general obligation bonds. The first tranche, $1.3 billion of various purpose GOs, saw 5s of 9/2023 at 2.34%, 5s of 2026 at 2.49%, 5s of 2032 at 2.92%, 5s of 2036 at 3.45% and 5s of 2039 at 3.62%, 5.25s of 2047 at 3.88%, 5s of 2052 at 3.98% and 4.25s of 2052 at 4.30%, callable 9/1/2032.
The second tranche, $1.031 billion of general obligation refunding bonds, saw 5s of 9/2023 at 2.34%, 4s of 2027 at 2.61%, 5s of 2031 at 2.89%, 5s of 2036 at 3.45% and 5s of 2042 at 3.80% and 3.57% and 4s of 2042 at 3.57%, callable 9/1/2032.
BofA Securities priced for the Triborough Bridge and Tunnel Authority (/AA+/AA+/AA+/) $751.509 million of MTA Bridges and Tunnels climate-certified bonds. The first tranche, $231.215 million of MTA Bridges and Tunnels payroll mobility tax senior lien refunding green bonds, Subseries 2022D-1A, saw 5s of 11/2026 at 2.61%, 5s of 2027 at 2.71%, 5s of 2032 at 3.15%, 5s of 2037 at 3.77% and 4s of 2042 at 4.32%, callable 11/15/2032.
The second tranche, $500.100 million of MTA Bridges and Tunnels payroll mobility tax senior lien green bonds, Subseries 2022D-2, saw 4.5s of 2047 at 4.55%, 5.25s of 2047 at 4.15%, 4.5s of 2052 at 4.60% and 5.5s of 2052 at 4.17%, callable 11/15/2032.
The third tranche, $20.194 million of MTA Bridges and Tunnels zero coupon capital appreciation payroll mobility tax senior lien refunding green bonds, Subseries 2022D-1B, saw 11/2030 at 3.60%, 2035 at 4.31%, 2036 at 4.40% and 2039 at 4.68%, noncall.
J.P. Morgan Securities priced for the Indiana Housing and Community Development Authority (Aaa//AAA/) $173.720 million of social single-family mortgage revenue bonds. The first tranche, $149.940 million of non-AMT bonds, 2022 Series C, saw all 4s of 1/2033 price at par, 4.35s of 7/2037 price at par, 4.6s of 7/2042 price at par, 4.75s of 7/2047 price at par and 5s of 7/2053 at 3.75%, callable 1/1/2032.
The second tranche, $3.780 million of AMT bonds, 2022 Series C-2, saw all bonds price at par: 2.8s of 7/2023 and 3.2s of 1/2025, noncall.
The third tranche, $20 million of taxables, 2022 Series D, saw all bonds price at par: 3.89s of 7/2024, 4.16s of 1/2027, 4.21s of 7/2027, 4.83s of 1/2032 and 4.88s of 7/2032, callable 1/1/2032.
With too many headwinds to confront, munis "are finding it difficult to show any performance against USTs when taxables catch a bid," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.
Wednesday's session was "such a scenario and a reversal from prior sessions when munis faded on UST weakness," she said.
Generic yields, she noted, "were weaker by a nominal amount, lagging taxable gains by almost two points in some spots."
Against two large state GO sales, the Investment Company Institute reported outflows of $2.5 billion, following a "large giveback from Lipper in the prior week, as well."
ICI has outflows at $90.3 billion year-to-date, while Lipper reports $52.5 billion of outflows so far this year.
"Further distraction came from the competitive sale of $1 billion Pennsylvania GOs, netting a maximum 5.00% 20-year yield of 3.81% — nearly matching the yield in a 3.75% 20-year bond from a 2018 sale by the state," she said.
"The other large GO sale from California opened retail orders with a nod to the current inflationary paradigm — a 5.25% coupon in the 2047 maturity offered near 4%," Olsan said. "As far back as 10 years in the state's GO issues, only one maturity in a 2013 (during the Taper Tantrum selloff) pricing used a similar coupon as all others contained coupons of 5% or lower."
In a sign that late Q3 business may be ramping up, bids wanteds on Bloomberg reached the highest figure since late June at $1.63 billion on Wednesday, she said.
"Of note is the increased concentration in lower-rated names, a category that has a progressional lag" to triple-A- and double-A-rated bonds, she said.
Bloomberg Barclay's index data shows the "upper two runs of investment grade munis have outperformed" single-A and triple-B-rated bonds by as much as 34 basis points this month, according to Olsan. The triple-B index is off 11.6% year-to-date, she said.
On a macro level, she said, "increasing supply into the end of the quarter will test the market's resolve to hold the current yield range."
"Federal Reserve figures indicate average weekly dealer carry of municipal bonds is $11.5 billion par," she said.
The highest tally happened between February and May as rates trended higher. During that period the 10-year triple-A MMD spot traded from 1.43% to a high of 3.02%, Olsan said.
"By August, dealer carry totals had fallen below $9 billion as increasing volatility took hold," she noted.
The average weekly par value traded in the secondary market is $9.4 billion this year, she said. May reached the year's high of $12 billion-plus, while August was shy of $10 billion par trade on a daily average.
The first five months of the year, she noted, "saw the carry/trade ratio hold at about 2:1," but "with the summer's chaotic tone, the figure has now fallen to near a 1:1 ratio."
"That drop may be indicative of cross-buying and selling activity, including tax swap business," Olsan said.
Muni CUSIP requests decline
Municipal request volume declined in August, following a decrease in July, according to CUSIP Global Services. For muni bonds specifically, there was an increase of 11.3% month-over-month but a 21.6% decrease year-over-year.
The aggregate total of identifier requests for new municipal securities, including municipal bonds, long-term and short-term notes, and commercial paper, fell 2.0% versus July totals. On a year-over-year basis, overall municipal volumes were down 18.8%.
Secondary trading
Maryland 4s of 2023 at 2.33% versus 2.21% on 9/2 and 2.27% on 9/1. DC 5s of 2023 at 2.35% versus 2.42% Wednesday.
Baltimore County, Maryland, 5s of 2028 at 2.50%. NYC 5s of 2028 at 2.62% versus 2.63% on 8/31.
Ohio 5s of 2034 at 3.25%-3.24%. NY Dorm PIT 5s of 2036 at 3.75%-3.73%. Maryland 5s of 2036 at 3.19% versus 3.14% on 9/1 and 2.89% on 8/22.
Tarrant County College District, Texas, 5s of 2040 at 3.64%.
DC 5s of 2047 at 3.76% versus 3.52% on 8/25. NYC TFA 5s of 2051 at 4.16%-4.15% versus 4.15%-4.14% Wednesday and 4.10% Tuesday.
AAA scales
Refinitiv MMD's scale was unchanged at 3 p.m. read: the one-year at 2.28% and 2.31% in two years. The five-year at 2.40%, the 10-year at 2.74% and the 30-year at 3.50%.
The ICE AAA yield curve saw bumps inside 10 years: 2.32% (-1) in 2023 and 2.34% (-2) in 2024. The five-year at 2.41% (-2), the 10-year was at 2.81% (-1) and the 30-year yield was at 3.50% (+2) at a 3:30 p.m. read.
The IHS Markit municipal curve was unchanged: 2.26% in 2023 and 2.34% in 2024. The five-year was at 2.44%, the 10-year was at 2.75% and the 30-year yield was at 3.48% at a 4 p.m. read.
Bloomberg BVAL was little changed: 2.33% (-1) in 2023 and 2.35% (unch) in 2024. The five-year at 2.38% (unch), the 10-year at 2.71% (unch) and the 30-year at 3.48% (+1) at 3:30 p.m.
Treasuries were weaker.
The two-year UST was yielding 3.491% (+6), the three-year was at 3.547% (+6), the five-year at 3.401% (+4), the seven-year 3.385% (+4), the 10-year yielding 3.301% (+3), the 20-year at 3.703% (+4) and the 30-year Treasury was yielding 3.455% (+5) near the close.
Mutual fund details
Refinitiv Lipper reported $1.090 billion of outflows for the week ending Wednesday following $3.416 billion of outflows the previous week.
Exchange-traded muni funds reported outflows of $189.235 million after outflows of $310.916 million in the previous week. Ex-ETFs, muni funds saw outflows of $900.604 million after outflows of $3.105 billion in the prior week.
The four-week moving average was at negative $1.479 billion from negative $1.365 billion in the previous week.
Long-term muni bond funds had outflows of $880.929 million in the latest week after outflows of $2.801 billion in the previous week. Intermediate-term funds had outflows of $81.359 million after outflows of $337.136 million in the prior week.
National funds had outflows of $1.040 billion after outflows of $2.957 billion the previous week while high-yield muni funds reported outflows of $539.623 million after outflows of $1.218 billion the week prior.
Primary on Wednesday:
J.P. Morgan Securities priced for the Omaha Public Power District, Nebraska, (Aa2/AA//) $420.565 million of electric system revenue bonds. The first tranche, $351.540 million, 2022 Series A, saw 5s of 2/2035 at 3.48%, 5s of 2037 at 3.64%, 4s of 2042 at 4.20%, 5s of 2047 at 4.03%, 4.25s of 2047 at 4.43% and 5.25s of 2052 at 4.07%, callable 2/1/2032.
The second tranche, $69.025 million, 2022 Series B, saw 5s of 2/2028 at 2.65%, 5s of 2032 at 2.99% and 5s of 2035 at 3.48%, callable 2/1/2032.
