PrintMunis little changed, USTs see small losses
BY SourceMedia | MUNICIPAL | 04:03 PM ESTMunis were little changed Thursday as U.S. Treasuries saw small losses and equities sold off.
The two-year muni-UST ratio Thursday was at 59%, the five-year at 60%, the 10-year at 65% and the 30-year at 90%, according to Municipal Market Data's 3 p.m. EDT read. The two-year muni-UST ratio was at 61%, the five-year at 62%, the 10-year at 65% and the 30-year at 90%, according to ICE Data Services.
Market technicals should weaken this month in line with seasonal expectations, with estimated redemption capital of $32 billion compared to estimated supply of $41 billion, said Appleton Partners strategists.
"This could loosen up tight ratios and unlock opportunities for tax-exempt investors," they said.
March usually begins softer as "we get closer to tax season," but it would "require" fund flows to go negative to "move the needle," said Jeff Timlin, managing partner and head of municipal bond investing at Sage Advisory.
Double-A spreads versus triple-A spreads have tightened up a little. "You're just not getting much additional yield within a double-A level," said Brian Therien, a senior fixed income analyst on the investment strategy team at Edward Jones. "It's lower than the historical average, so tightening up relative to the highest-quality credits. There's some yield compression happening there."
Conversely, the opposite is seen with triple-B spreads, where investors get more yield and compensation relative to single-A, he said.
The long end seems to be attractive relative to the short end, as yields are low on that short-end, Therien added.
"You'd have to be in a pretty high tax bracket for that to look more attractive. So maybe some higher net worth investors, or almost like top tax bracket investors," he said.
Demand has shifted a little, as interest has increased on the longer end of the curve, at least as measured by new issue subscription levels from late February, Timlin said.
However, market participants are more likely to stay in the short and intermediate parts of the curve than extend duration in "muniland" as a large swath of the market is retail investors, he noted.
"They don't like to go beyond 15 years. Usually [it's] a lot shorter, but 15 years is where they stick inside of," Timlin said.
However, "once the market shifted from a commingled fund product to an SMA-type of strategy that people saw in their statements with the bonds that they hold, and then they probably had a little fear of owning something longer-dated, that dynamic is finally giving ground to people being comfortable with longer-dated securities," as evidence by flows at Sage and large growth in its core products over the past two years, he said.
New-issue market
In the primary market Thursday, J.P. Morgan preliminarily priced for Houston on behalf of the Convention and Entertainment Facilities Department $1.186 million of hotel occupancy tax and special revenue bonds. The first tranche, $1.089 million of Series 2026C first lien refunding bonds (/A-//), saw 5s of 9/2034 at 3.13%, 5s of 2036 at 3.40%, 5s of 2041 at 3.94%, 5s of 2046 at 4.51% (Assured Guaranty
The second tranche, $97.615 million of Series 2026D second lien bonds (/BBB+//), saw 5s of 9/2035 at 3.28%, 5s of 2036 at 3.40%, 5s of 2041 at 3.94%, 5s of 2046 at 4.63%, 5.25s of 2051 at 4.81% and 5.5s of 2058 at 4.91%, callable 9/1/2036.
In the competitive market, the South Florida Water Management District (Aa1/AA//) sold $227.115 million of refunding certificates of participation, to BofA Securities, with 5s of 10/2026 at 2.26%, 6s of 2031 at 2.40%, and 5s of 2036 at 2.98%, noncall.
The California Infrastructure and Economic Development Bank (Aaa/AAA/AAA/) sold $124.065 million of green California Clean Water and Drinking Water State Revolving Fund refunding revenue bonds, to BofA Securities, with 5s of 10/2026 at 1.90%, 5s of 2031 at 1.91%, and 5s of 2035 at 2.30%, noncall.
Las Vegas (Aa2/AA+//) sold $110.05 million of limited tax GO city hall refunding bonds, Series 2026C, to Truist, with 5s of 9/2026 at 2.21%, 5s of 2031 at 2.40%, 5s of 2036 at 2.94% and 5s of 2039 at 3.31%, callable 9/1/2036.
Fund flows
Investors added $1.441 billion to municipal bond mutual funds in the week ended Wednesday, following $1.028 billion of inflows the prior week, according to LSEG Lipper data. This is the eighth time inflows have topped $1 billion over the last nine weeks.
High-yield funds saw inflows of $265.9 million compared to inflows of $454.8 million the previous week.
Tax-exempt municipal money market funds saw outflows of $1.212 billion for the week ending March 2, bringing total assets to $144.34 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 was 1.71%.
Taxable money-fund assets saw $37.871 billion added, bringing the total to $7.652 trillion.
The average seven-day simple yield was 3.37%.
The SIFMA Swap Index was at 1.54% on Wednesday compared to the previous week's 1.88%.
AAA scales
MMD's scale was unchanged: 2.12% in 2027 and 2.13% in 2028. The five-year was 2.25%, the 10-year was 2.68% and the 30-year was 4.26% at 3 p.m.
The ICE AAA yield curve was cut up to one basis point: 2.15% (unch) in 2027 and 2.17% (+1) in 2028. The five-year was at 2.28% (+1), the 10-year was at 2.68% (+1) and the 30-year was at 4.26% (+1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.12% in 2027 and 2.13% in 2028. The five-year was at 2.24%, the 10-year was at 2.64% and the 30-year yield was at 4.26% at 3 p.m.
Bloomberg BVAL was unchanged: 2.14% in 2027 and 2.14% in 2028. The five-year at 2.22%, the 10-year at 2.64% and the 30-year at 4.19% at 4 p.m.
U.S. Treasuries saw small losses.
The two-year UST was yielding 3.573% (+2), the three-year was at 3.591% (+3), the five-year at 3.715% (+3), the 10-year at 4.126% (+3), the 20-year at 4.706% (+2) and the 30-year at 4.739% (flat) near the close.
