Muni buyers focus on primary, traders ignore more UST losses

Municipal secondary trading did little to move triple-A yield curves, outperforming a weaker U.S. Treasury market again, as the primary market took focus.

Triple-A yield curves barely budged while USTs saw losses of three to four basis points across the curve.

The day's moves pushed ratios lower still. The two-year municipal to UST ratio Wednesday was at 61%, the five-year at 62%, the 10-year at 66% and the 30-year at 82%, according to Refinitiv Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 62%, the five-year at 62%, the 10-year at 67% and the 30-year at 81% at 3 p.m.

The Investment Company Institute reported $360 million of inflows into municipal bond mutual funds for the week ending Nov. 13 after $165 million of inflows the week prior. This marks 14 consecutive weeks of inflows.

Exchange-traded funds saw a much lower figure of inflows at $351 million compared to $1.194 billion and $1.274 billion of inflows the two previous weeks.

Money market funds reported $88.2 million of outflows led by national retail funds in the latest week, the second consecutive week of outflows, moving total assets under management to $136.106 billion, according to the Money Fund Report, a weekly publication of EPFR.

The average seven-day simple yield for all tax-free and municipal money-market funds rose to 2.95% from 2.85%.

Municipals are outperforming USTs to a large degree this month, with investment-grade munis seeing positive 0.81% returns in November and 1.63% year-to-date. USTs are in the red at -0.40% in November with returns in 2024 only positive 0.96%.

However, across the credit curve, "the high-yield space has seen consistent draws this year," said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.

"Buyers remain committed to the sector via outright purchases and through mutual fund conduits," she said. "The hunt for yield among traditional and crossover muni buyers has driven the category to a near-7% gain on the year. In addition to positive open-end fund inflows in the sector, ETF flows have exceeded $350 billion this year against a nominal $11 billion net inflow through the same period last year (Bloomberg data)."

Olsan noted the Houston Airport offering for a United Airlines Terminal project came with a 5% coupon bond due 2039 (call 2034) at 4.66% and spread +156/BVAL.

"By comparison, Chicago's Airport Authority (O'Hare) priced NR/A-minus, AMT-subject bonds in mid-October with the 5% due 2039 yielding 4.00% and spread +100/BVAL ? with a rating six notches above the Houston issue," she said.

"Comparative yields show the value to a range of buyers for sector diversity," she said.

For a 21% corporate rate buyer, the Houston Airport 2039 maturity offered a 5.90% taxable equivalent yield, a substantial return when compared to the Bloomberg Barclay's High Yield Corporate index, which yields 7.30% and the Long Investment Grade index carries a yield of 5.63%.

"The near-term outlook for generic GO/Essential Service sales is more limited, potentially giving further bid-side support to those sectors," she said. "So far this month, GO bond gains have kept pace with revenues at +0.80%, but do lag on a year-to-date basis by about 80 basis points."

In the primary, Goldman Sachs (GS) priced and repriced for institutions $606.015 million of transportation infrastructure purposes special tax obligation bonds for Connecticut (Aa3/AA/AA-/AAA/) with a mix of bumps and cuts from Tuesday's retail offering. The first tranche, $231.22 million of Series 2024A-1 bonds, saw 5s of 7/2025 at 3.08% (-7), 5s of 2029 at 2.90% (+6) and 5s of 2031 at 2.94% (-1), noncall.

The second tranche, $374.795 million of refunding Series 2024B bonds, saw 5s of 7/2025 at 3.08% (-7), 5s of 2029 at 2.90% (+6) and 5s of 2031 at 2.94% (-1), noncall.

BofA Securities priced for the Omaha Airport Authority (A1/AA-//) $319.45 million of airport facilities AMT revenue bonds, Series 2024, with 5s of 12/2025 at 3.45%, 5s of 2029 at 3.55%, 5s of 2034 at 3.88%, 5.25s of 2039 at 4.01%, 5.25s of 2044 at 4.23%, 5.25s of 2049 at 4.35% and 5.25s of 2054 at 4.41%, callable 12/1/2034.

Jefferies priced for the Pennsylvania Housing Finance Agency (Aa1/AA+//) $248.56 million of single-family mortgage non-AMT social revenue bonds, Series 2024-147A, with all bonds priced at par: 3.25% in 4/2025 and 10/2025, 3.35% in 4/2029 and 3.375% in 10/2029, 3.90% in 4/2034 and 10/2034, 4.10% in 10/2039, 4.50% in 10/2044, 4.70% in 10/2049, 4.73% in 4/2053, callable in 10/1/2032; PAC bonds with a 6.25% coupon yield 3.68% in 10/2054.

BofA Securities priced for the Cabarrus County Development Corp., North Carolina, (Aa1/AA+/AA+/) $135.54 million of limited obligation bonds, Series 2024B, with 5s of 8/2025 at 3.00%, 5s of 2029 at 2.79%, 5s of 2034 at 3.12%, 5s of 2039 at 3.33% and 5s of 2044 at 3.72%, callable 8/1/2034.

Wells Fargo (WFC) priced for Garland, Texas, (A1//AA-/) $111.76 million of electric utility system revenue refunding bonds, New Series 2024, with 5s of 3/2026 at 2.98%, 5s of 2029 at 2.94%, 5s of 2034 at 3.25%, 5s of 2039 at 3.56%, 5s of 2044 at 3.96%, 5s of 2050 at 4.14% and 4.25s of 2055 at 4.39%, callable 3/1/2034.

In the competitive market, the Santa Barbara Finance Authority, California, (Aa2/AA//) sold $124.222 million of public safety and park project lease revenue bonds to Mesirow Financial with a true interest cost of 3.8618%; 5s of 2029 at 2.48%, 5s of 2034 at 2.76%, 5s of 2039 at 3.01%, 4s of 2044 at 3.85%, 4s of 2049 at 4.02%, 4s of 2053 at 4.06%, and 4s of 2057 at 4.08%.

Negotiated calendar:
The Maricopa Industrial Development Authority (Ba1//BBB-/) is set to price Thursday $520 million of Grand Canyon University Project taxable education revenue bonds, Series 2024. Goldman Sachs (GS).

Competitive:
Dallas (/AA-/AA/) is set to price $319.905 million of GO refunding and improvement bonds at 11:15 a.m. Thursday and $248.78 million of waterworks and sewer system revenue refunding bonds at noon Thursday.