Bonds

Munis rally, mutual fund inflows hit just shy of $1.5B

Municipals rallied Thursday as the Triborough Bridge and Tunnel Authority doubled the size of its deal to $1.6 billion while muni mutual funds saw inflows hit nearly $1.5 billion. U.S. Treasury yields fell and equities improved.

Muni yields were bumped two to 12 basis points, depending on the curve, while UST yields fell six to 12 basis points. Primary market deals saw large bumps to scales in repricings.

LSEG Lipper reported Thursday that investors added $1.476 billion to municipal bond mutual funds for the week ending Wednesday after inflows of $210.6 million the week prior. The last time inflows topped $1 billion was more than a year ago on the week ending Jan. 18.

High-yield also saw inflows of $626 million after inflows of $179 million the week prior.

“An end-of-month Fed fury generated strong bidding across all tenors and credit sectors on forward rate guidance,” said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Munis went into a “book-the-yield-now-while-you-can-trade with large gains posted along most of the curve,” she said.

While the market “didn’t quite recoup 100% of the yield losses from early in January,” Olsan said the last two sessions made up for around half the gap.

The main muni index posted losses of 0.51%, well lagging the 2.8% gain from January 2023, she said.

“Munis underperformed the U.S. Treasury Index, which returned -0.3%,” said Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel.

On a duration-matched basis, they noted “munis underperformed Treasuries in the short- and intermediate end, and slightly outperformed on the long-end.”

“Short-term tenors posted the best result, finishing nearly unchanged from December’s close,” with allocations taking “advantage of favorable rates — the one-year MMD average during the month was 2.89% and weekly floaters traded on a weekly average of 3.30%,” Olsan said.

As intermediate ratios remained in the low to mid-60s with yields below 2.50%, Olsan said “performance was hampered with a 50 basis point loss.”

“Long-dated bonds sold off 0.8% during the month with a trading range in the 30-year MMD spot of 3.43% to 3.61%,” she said.

The five- and 10-year MMD-UST ratios were cheaper by one percentage point month-over-month, while 30-year ratio was two percentage points richer in January, Barclays strategists.

The two-year muni-to-Treasury ratio Thursday was at 61%, the three-year at 61%, the five-year at 60%, the 10-year at 59% and the 30-year at 83%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 62%, the three-year at 61%, the five-year at 60%, the 10-year at 59% and the 30-year at 81% at 3:30 p.m.

Meanwhile, GOs and revenue bonds “performed on parity, matching the broad market loss” with the latter outperforming on a spread trade last year, according to Olsan.

“The GO bond index returned -0.6% in January and underperformed the revenue bond index slightly, which posted -0.5% in total return terms,” Barclays strategists

Water/sewer, transportation and healthcare will little affected by January’s volatility, she said.

Taxables saw a nominal loss, “marginally outperforming UST and corporate bond results by 10-20 basis points,” she said.

Taxable issuance for January was $1.1 billion, down 66.8% from 2023, according to LSEG Refinitiv data.

“The supply outlook may improve in coming months if the rate path brings advance refundings back into the mix,” Olsan said.

Refundings in January were at $2.4 billion, down 57.8% year-over-year, per LSEG Refinitiv data.

High-yield munis “tracked the main tax-exempt index with a loss of 0.4%,” she said.

“Strong performance in the water/sewer, transportation, and electric sectors was offset by negative performance in tobacco, education, healthcare, and special tax,” Barclays strategists said.

Excluding Puerto Rico credits, they noted the index saw total returns of negative 0.6%.

“The proxy for the sector of Buckeye OH Tobacco 5s due 2055 reached a high yield during the month of 5.68%, but ended with an intra-month low of 5.36%,” Olsan said.

January’s high-yield muni ETF flows saw $15 million in outflows and the 12-month cycle outflow is $53 million, according to Bloomberg data.

In the primary market Thursday, Goldman Sachs priced and repriced for institutions an upsized $1.659 billion of TBTA Capital Lockbox – City Sales Tax sales tax revenue bonds, Series 2024A, from the Triborough Bridge and Tunnel Authority (/AA+/AAA/), with yields bumped 12 to 20 basis points from Wednesday’s retail offering: The first tranche, $1.502 billion of Series 2024A-1, saw 5s of 5/2027 at 2.46% (-17), 5s of 2029 at 2.34% (-17), 5s of 2034 at 2.50% (-15), 5s of 2039 at 2.99% (-20), 5s of 2044 at 3.43% (-14), 5s of 2049 at 3.69% (-17), 4s of 2054 at 4.10%, 5s of 2054 at 3.82% (-15), 5.25s of 2059 at 3.88% (-13), 4.25s of 2064 at 4.28% (-12) and 5.25s of 2064 at 3.99% (-12), callable 5/15/2034.

The second tranche, $102.850 million of Series 2024A-2, saw 5.25s of 5/2059 at 3.88% (-13) and 5.25s of 2064 at 3.99% (-12), callable 5/15/2033.

Piper Sandler priced and repriced for the Alvin Independent School District, Texas, (Aaa//AAA/) $99.145 million of PSF-insured unlimited tax schoolhouse and refunding bonds, Series 2024, with yields bumped up to 12 basis points: 5s of 2/2025 at 2.97% (-9), 5s of 2029 at 2.48% (-9), 5s of 2034 at 2.65% (unch), 5s of 2039 at 3.16% (-3), 5s of 2044 at 3.45% (-10) and 4s of 2051 at 4.05% (-12), callable 2/15/2033.

Secondary trading
Washington 5s of 2025 at 2.91% versus 2.99% Wednesday. Virginia 5s of 2026 at 2.58%-2.53%. California 5s of 2026 at 2.54%-2.52% versus 2.70%-2.68% Tuesday.

Connecticut 5s of 2028 at 2.40%. California 5s of 2029 at 2.31%-2.30% versus 2.47%-2.46% Tuesday. NYC 5s of 2030 at 2.42%-2.41%.

Florida BOE 5s of 2034 at 2.42%-2.39%. University of California 5s of 2035 at 2.40%-2.38% versus 2.39%-2.38% Wednesday and 2.49%-2.48% Tuesday. Washington 5s of 2036 at 2.60% versus 2.75%-2.74% Wednesday and 2.87%-2.78% original on 1/24.

Massachusetts 5s of 2049 at 3.67%-3.61% versus 3.86%-3.88% Monday and 3.89%-3.94% on 1/23. Triborough Bridge and Tunnel Authority 5s of 2051 at 3.64%-3.63% versus 3.80% Wednesday and 3.85% Tuesday. Battery Park City Authority 5s of 2053 at 3.56%-3.55% versus 3.76% on 1/19.

AAA scales
Refinitiv MMD’s scale saw large bumps: The one-year was at 2.84% (-7, -1bp Feb. roll) and 2.56% (-8, no Feb. roll) in two years. The five-year was at 2.26% (-10, no Feb. roll), the 10-year at 2.28% (-10, no Feb. roll) and the 30-year at 3.42% (-10) at 3 p.m.

The ICE AAA yield curve was bumped two to eight basis points: 2.84% (-2) in 2025 and 2.61% (-8) in 2026. The five-year was at 2.33% (-8), the 10-year was at 2.33% (-7) and the 30-year was at 3.40% (-7) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was bumped 11 to 12 basis points: The one-year was at 2.80% (-12) in 2025 and 2.58% (-12) in 2026. The five-year was at 2.27% (-11), the 10-year was at 2.28% (-11) and the 30-year yield was at 3.40% (-11), according to a 3 p.m. read.

Bloomberg BVAL was bumped seven to nine basis points: 2.79% (-7) in 2025 and 2.64% (-7) in 2026. The five-year at 2.29% (-8), the 10-year at 2.36% (-8) and the 30-year at 3.47% (-9) at 3:30 p.m.

Treasuries were stronger.

The two-year UST was yielding 4.197% (-6), the three-year was at 3.967% (-8), the five-year at 3.800% (-10), the 10-year at 3861% (-11), the 20-year at 4.203% (-12) and the 30-year Treasury was yielding 4.102% (-12) at 3:45 p.m.

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