PrintMunis extend selloff but asset class remains 'resilient'
BY SourceMedia | MUNICIPAL | 04:12 PM EDTMunis extended their selloff Thursday, with the largest losses in the belly, U.S. Treasuries cheapened 10 years and in and equities ended down.
The two-year muni-UST ratio Thursday was at 58%, the five-year at 61%, the 10-year at 67% 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 60%, the five-year at 63%, the 10-year at 68% and the 30-year at 90%, according to ICE Data Services.
Coming into this month, market participants were aware that March reinvestment dollars would be down and new-issue volume would pick up, but did not know volatility from the war in the Middle East, surging oil prices and rising inflation were coming, said Lyle Fitterer, co-lead of the municipal sector and senior portfolio manager at Baird Funds.
The March/April period is typically a softer period for the muni market, said Jeff Timlin, managing partner and head of municipal bond investing at Sage Advisory.
The lack of organic reinvestment may have "slowed" things a little, but the war in Iran and the trickle-down effects, which have hit every asset class, contributed the most to the extended market weakness over the past two weeks, he said.
"You see heightened volatility across everything ? Some of the assets have gotten maybe a little bit dinged here over the past several weeks, so that has caused people just to kind of sit on the sidelines," Timlin said.
Market volatility has led to some deals being pulled, including a part of Chicago's $800 million general obligation bond deal that priced Tuesday, Fitterer said.
Meanwhile, the state of California's $2.41 billion deal on Wednesday, which usually would have "priced through MMD," did not, said Dora Lee, director of research and partner at Belle Haven.
That's "great if you're trying to buy more California paper, not so great if you're holding California paper," she said.
The secondary market has been "orderly" because of the tremendous demand, Fitterer said.
Some of the odd-lot trading seems to be fairly well received in the secondary market, while some of the larger $5 million block trades are probably slowing down a little and not trading as quickly, Timlin said.
There's plenty of capital out there to get things done, so in the sub-million-dollar area, there's still good flow, he noted.
"But when you start getting into the block size where you need institutional buyers to come in and take things out, there's a bit of softness there," Timlin said.
Even with all the volatility, the muni market has been resilient because many of the tailwinds have passed, said Erik Schleicher, managing director and portfolio manager at Baird Funds.
"A lot of muni managers are sitting on more cash than they have for many years, so everyone's waiting for the opportunity. Had we been in a different cycle and there'd been less cash, volatility could have been a little bit more, but the demand is so strong that it's muted a little bit," he said.
The good thing is "everything has been so tight lately, and investor demand has not let up. These past two weeks or so have been a good opportunity to take advantage of this little pop-up in yields, if you have cash to put to work," Lee said.
New-issue market
In the primary market Thursday, Barclays
Fund flows
Investors added $612.2 million to municipal bond mutual funds in the week ended Wednesday, following $1.442 billion of inflows the prior week, according to LSEG Lipper data.
High-yield funds saw inflows of $17.6 million compared to inflows of $266 million the previous week.
Tax-exempt municipal money market funds saw outflows of $1.718 billion for the week ending March 9, bringing total assets to $141.622 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 1.51%.
Taxable money-fund assets saw $21.541 billion added, bringing the total to $7.674 trillion.
The average seven-day simple yield was 3.35%.
The SIFMA Swap Index was at 2.43% on Wednesday compared to the previous week's 1.54%.
AAA scales
MMD's scale was cut two to eight basis points: 2.14% (+2) in 2027 and 2.17% (+4) in 2028. The five-year was 2.38% (+7), the 10-year was 2.87% (+8) and the 30-year was 4.37% (+6) at 3 p.m.
The ICE AAA yield curve was cut up to seven basis points: 2.17% (unch) in 2027 and 2.21% (+1) in 2028. The five-year was at 2.40% (+6), the 10-year was at 2.87% (+7) and the 30-year was at 4.38% (+5) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut up to seven basis points: The one-year was at 2.12% (unch) in 2027 and 2.18% (+5) in 2028. The five-year was at 2.35% (+5), the 10-year was at 2.82% (+7) and the 30-year yield was at 4.35% (+7) at 3 p.m.
Bloomberg BVAL was cut three to nine basis points: 2.18% (+3) in 2027 and 2.20% (+3) in 2028. The five-year at 2.33% (+5), the 10-year at 2.81% (+9) and the 30-year at 4.31% (+7) at 4 p.m.
U.S. Treasuries were weaker.
The two-year UST was yielding 3.674% (+9), the three-year was at 3.757% (+8), the five-year at 3.865% (+6), the 10-year at 4.258% (+3), the 20-year at 4.856% (+1) and the 30-year at 4.872% (-1) near the close.
