Munis weaker in spots while outflows top $3.6B

Bonds

Municipals were slightly weaker in spots Thursday while a more robust primary market provided distraction again as the New York Urban Development Corp. sold $1.4 billion in the competitive market. U.S. Treasuries were weaker 10 years and in, and equities sold off.

Outflows from municipal bond mutual funds intensified as investors pulled $3.601 billion out of funds in the latest week, versus the $2.007 billion of outflows the prior week, according to Refinitiv Lipper data.

High-yield saw outflows of $1.038 billion after $566.931 million of outflows the week prior. Exchange-traded funds saw outflows of $295.838 million after $8.993 million of outflows the previous week.

The latest numbers put the four-week moving average at negative $2.025 billion from negative $1.978 billion in the previous week.

While selling pressure remained elevated, triple-A yields rose only one to three basis points on Thursday after vastly underperforming UST a day earlier.

The day’s moves pushed ratios higher: The three-year was at 75%, the five-year was at 79%, the 10-year at 88% and the 30-year at 105%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the three at 75%, the five at 80%, the 10 at 91% and the 30 at 105% at a 4 p.m. read.

The primary was active Thursday. In the competitive market, the New York Urban Development Corp. sold $1.443 billion of tax-exempt personal income tax revenue bonds in five sales.

The first, $410.11 million of PITs, went to BofA Securities. Bonds in 3/2024 with a 5% coupon yield 3.18%, 5s of 3/2027 and 5s of 9/2027 at 3.35% and 5s of 3/2029 and 9/2029 at 3.47%, noncall.

The second, $406.04 million of PITs, to J.P. Morgan Securities LLC, with 5s of 3/2030 at

The third, $311.57 million, to Morgan Stanley: 5.25s of 3/2037 at 4.17%, 5s of 2042 at 4.45% and 5s of 2045 at 4.54%, callable 9/15/2032.

The fourth, $296.31 million, to BofA Securities: 5s of 3/2046 at 4.61%, 5s of 2047 at 4.62% and 4.75s of 2051 at 4.85%, callable 9/15/2032.

The issuer also sold $$47.03 million of taxable PITs to J.P. Morgan Securities. Bonds priced at par: 4.82% in 2027 and 5.20% in 2032.

In the negotiated market, Morgan Stanley & Co. priced for the Lower Colorado River Authority (/A/A+/) $194.595 million of LCRA Transmission Services Corporation Project transmission contract refunding revenue bonds. Bonds in 5/2023 with a 5% coupon yield 3.21%, 5s of 2027 at 3.46%, 5s of 2032 at 3.80%, 5.25s of 2037 at 4.29%, 5.25s of 2042 at 4.53%, 5.5s of 2047 at 4.62% and 6s of 2052 at 4.57%, callable 5/15/2032.

Citigroup Global Markets priced for the Tennessee Housing Development Agency (Aa1/AA+//) $160 million of non-AMT social residential finance program bonds. Bond priced at par: 3% in 7/2023, 3.60% in 1/2027, 3.65% in 7/2027, 4.25% in 1/2032, 4.30% in 7/2032, 4.75% in 7/2037, 4.95% in 7/2042, 5.05% in 7/2048; and 5.5s of 7/2053 at 4.46%, callable 1/1/2032.

The past two days have been “strange” given volatility and news coming from the United Kingdom, said Eve Lando, a portfolio manager for Thornburg Investment Management. After the new government’s economic plans drove up borrowing prices over the past several days, the Bank of England said Wednesday it would temporarily buy British government bonds.

This led to the UST rally and municipal underperformance. The primary has been the focus this week, providing a distraction from the broader market volatility.

This week, she noted all the new deals priced were attractive, and there’s been “volume and newness,” and at the same time, oversubscription levels are creeping up again.

“With everything happening, with the incredible volatility, the muni market is still kind of finding its footing,” she said.

Lando said the market is in “price discovery mode,” which is an opportunistic and rewarding time to put money to work.

The overhang from the Federal Open Market Committee rate hikes during the summer and this month held back issuance levels. Preliminary numbers show issuance down 50% in September from the same time a year prior.

At the same time, more paper is coming to the secondary market, which is a “complete change of pace from last year,” she said.

“So whatever is not coming to the primary market, one could argue is somewhat made up by very active secondary market trading happening,” Lando said.

Primary issuance picked up this week, and Lando said she hopes that from now through the holiday weeks, the market will catch up to her prediction of $400 billion of total issuance for the year.

For the remainder of the year, she sees price discovery similar to in May when “things got backed up and yields tightened and a crowded back end” and in April when yields were briefly attractive.

“It will probably be this tide coming in and out,” she said. “We’ll see that on the short end, and hopefully, during this period of adjusting, we’ll find a level and catch up to Treasuries on the short end.”

She believes the long end is more attractive right now, but the curve is moving in the right direction.

Informa: Money market muni outflows continue
Tax-exempt municipal money market funds saw outflows as $1.444 billion was pulled the week ending Monday, bringing the total assets to $99.59 billion, according to the Money Fund Report, a publication of Informa Financial Intelligence.

The average seven-day simple yield for all tax-free and municipal money-market funds climbed to 1.45%.

Taxable money-fund assets added $22.3 billion to end the reporting week at $4.439 trillion of total net assets. The average seven-day simple yield for all taxable reporting funds rose to 2.44%.

Secondary trading
California 5s of 2023 at 3.19%-3.09%. Utah 5s of 2025 at 3.06% versus 3.11% Wednesday. New York City 5s of 2025 at 3.11%-3.10%.

Baltimore County, Maryland, 5s of 2028 at 3.24%. Florida PECO 5s of 2028 at 3.27%.

New York Dorm PITs 5s of 2030 at 3.62%-3.59%. Ohio 5s of 2030 at 3.41%. Delaware 5s of 2031 at 3.25%.

Washington 5s of 2037 at 3.99%. Texas waters 5s of 2047 at 4.45%-4.35% (original 4.45%).

AAA scales
Refinitiv MMD’s scale was cut two to three basis points at a 3 p.m. read: the one-year at 3.06% (+2) and 3.09% (unch) in two years. The five-year at 3.12% (unch), the 10-year at 3.30% (+2) and the 30-year at 3.90% (+3).

The ICE AAA yield curve was cut a basis point: 3.07% (unch) in 2023 and 3.11% (+1) in 2024. The five-year at 3.16% (+1), the 10-year was at 3.36% (unch) and the 30-year yield was at 3.90% (+1) at a 4 p.m. read.

The IHS Markit municipal curve was cut three: 3.04% (+3) in 2023 and 3.10% (+3) in 2024. The five-year was at 3.16% (+3), the 10-year was at 3.32% (+3) and the 30-year yield was at 3.91% (+3) at a 4 p.m. read.

Bloomberg BVAL was cut up to one basis point: 3.02% (+1) in 2023 and 3.05% (+1) in 2024. The five-year at 3.10% (+1), the 10-year at 3.24% (unch) and the 30-year at 3.90% (+1)) at 4 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.174% (+3), the three-year was at 4.198% (+4), the five-year at 4.004% (+5), the seven-year 3.906% (+3), the 10-year yielding 3.765% (+4), the 20-year at 4.013% (+1) and the 30-year Treasury was yielding 3.705% (flat) at the close.

Mutual fund details
Refinitiv Lipper reported $3.601 billion of outflows for the week ending Wednesday following $2.007 billion of outflows the previous week.

Exchange-traded muni funds reported outflows of $295.838 million after outflows of $8.993 million in the previous week. Ex-ETFs, muni funds saw outflows of $3.305 billion after outflows of $1.998 billion in the prior week.

Long-term muni bond funds had outflows of $2.413 billion in the latest week after outflows of $1.269 billion in the previous week. Intermediate-term funds had outflows of $586.090 million after outflows of $217.387 million in the prior week.

National funds had outflows of $3.183 billion after outflows of $1.705 billion the previous week while high-yield muni funds reported outflows of $1.038 billion after outflows of $566.931 million the week prior.

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