Mutual fund inflows top $1.2B, half into HY

Municipal were little changed Thursday as inflows into muni mutual funds topped $1 billion. U.S. Treasury yields rose and equities closed the session up.

Municipal bond mutual funds saw $1.288 billion of inflows for the week ending Wednesday, according to LSEG Lipper. That compares to $303.2 million of inflows the prior week and marked 21 straight weeks of inflows.

High-yield funds saw $608.9 million of inflows compared with inflows of $150.3 million the week prior.

Most triple-A curves saw no movement in yields Thursday, while USTs yields rose inside 10 years and fell out long.

The two-year municipal to UST ratio Thursday was at 60%, 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 66% and the 30-year at 81% at 4 p.m.

The primary calendar was light Thursday, with the last few large deals pricing, and the new-issue slate has been "well received" this week, said Brad Libby, a fixed-income portfolio manager and credit analyst at Hartford Funds.

"If you had any kind of spread, like in the 40 or 50 spread for either a A or AA- those are all five to 10 times oversubscribed and had anywhere from five to 10 basis point bumps when they did the reallocation," he said.

The primary had more high-yield paper for investors to digest Thursday. Goldman Sachs (GS) priced for Maricopa Industrial Development Authority (Ba1//BBB-/) $520 million of Grand Canyon University Project taxable education revenue bonds, with 7.375s of 10/2029 at par, callable 9/1/2029.

BofA Securities priced for the Charlotte-Mecklenburg Hospital Authority (Aa3/AA/AA/) $100 million of various rate health care revenue bonds, Series 2021B, with 3.25s of 1/2050 with a mandatory put date of 6/15/2027 at par.

In the competitive market, Dallas (/AA-/AA/) sold $321.18 million of GO refunding and improvement bonds to J.P. Morgan, with 5s of 2/2026 at 2.88%, 5s of 2029 at 2.79%, 5s of 2034 at 3.13%, 5s of 2039 at 3.39% and 4s of 2044 at 4.13%, callable 2/15/2034.

The city (/AAA/AA/) also sold $248.535 million of waterworks and sewer system revenue refunding bonds to BofA Securities, with 5s of 10/2026 at 2.68%, 5s of 2029 at 2.71%, 5s of 2034 at 3.07%, 5s of 2039 at 3.34%, 4s of 2044 at par, 4s of 2049 at 4.13% and 4.125s of 2054 at 4.24%, callable 10/1/2034.

Supply drops off considerably due to the Thanksgiving holiday, Libby noted.

Bond Buyer 30-day visible supply sits at $5.58 billion.

The remainder of the year will see an additional $25 billion to $35 billion in issuance, 75% to 80% of which will come in two weeks after Thanksgiving, Libby said.

After the first two weeks of December, Libby noted supply will drop off once more.

Along with waning supply, there are still inflows into muni mutual funds and reinvestment money coming into the market, most of which came Nov. 1, he said, noting more reinvestment money will hit of Dec. 1.

Following initial volatility, "the election didn't knock the muni market down to the mat: It's early in the bout, but so far, the outcome of the election hasn't resulted in any body blows to munis," said Cooper Howard, a fixed-income strategist at Charles Schwab (SCHW).

Munis offer a "compelling balance of risk and reward for investors in higher tax brackets," which hasn't changed due to the election's outcome, he said.

Absolute yields remain "attractive" for higher net-worth investors, but relative yields have become "further stretched" since the election, he said.

UST yields have risen across the curve, but "the same can't be said about muni yields," Howard noted.

While yields have remained steady to slightly firmer for around eight trading sessions, the question remains of where yields will go throughout the rest of the year, Libby said.

"It's going to come down to what the tariffs are going to be and how much of the immigration policy that [President-elect Donald] Trump wants to put through is going to take hold," he said.

Trump holds slim majorities in the Senate and potentially the House of Representatives, so Libby said he was not sure what will be enacted, but the market will react to both "inflationary" events.

In addition, all eyes will be on what the Fed will do at its upcoming meetings, he said.

The market has currently priced in an 80% probability of a 25-basis-point rate cut at its December meeting, Libby said.

Next year, he said, will see rates cut an additional 50 basis points to 100 basis points.

These events will also have an impact on fund flows.

If the pace and size of rate cuts increases, potentially prompted by increased fear of inflation, there may be a pause on inflows, he said.

"Big rate moves higher tend to have a negative effect on muni fund flows," Libby said.

CUSIP requests rose
The aggregate total of identifier requests for new municipal securities, including municipal bonds, long-term and short-term notes, and commercial paper, rose 25% versus September's totals, according to CUSIP Global Services. On a year-over-year basis, overall municipal volumes are up 11.4%.

Texas led state-level municipal request volume with a total of 169 new CUSIP requests in October, followed by California (133) and New York (109).

For the specific category of municipal bond identifier requests, there was an increase of 34.5% month-over-month, but requests for municipal bond identifiers are up 11.5% year-over-year.