Municipals were little modified Thursday together with U.S. Treasuries while equities made gains. Mutual funds saw more outflows while money market funds were back within the black.
The market is in a “seasonal winter softness” period where technicals are weak in the meanwhile, said Jeff Timlin, a managing partner at Sage Advisory.
Nevertheless, that largely has to do with light staffing and lack of latest issuance to present pricing guidance, he said.
“We’re coping with late yearend potential tax-loss selling, which may generate somewhat little bit of volatility there, and/or wider bid-ask spreads,” Timlin said.
Despite the vacation lull, investors were still pulling money from mutual funds. Municipal bond mutual funds saw more outflows, as LSEG Lipper reported investors pulled $878.5 million from the funds for the week ending Dec. 25, which follows $859.6 million of outflows the prior week.
High-yield funds saw outflows of $413.6 million in comparison with the previous week’s outflows of $71 million.
The four-week moving average grew to $145.2 million per week of outflows from the previous week’s $253.1 million per week average of inflows.
There continues to be a discrepancy between LSEG Lipper and the Investment Company Institute, which reported outflows of $222 million for the week ending Dec. 18 following $1.04 billion of inflows into municipal bond mutual funds for the week ending Dec. 11. This reporting week ended 18 consecutive weeks of inflows, per ICI data.
Exchange-traded funds saw outflows of $562 million for the week ending Dec. 17 following inflows of $114 million the week prior, per ICI data.
Tax-exempt municipal money market funds saw inflows of $1.477 billion for the week ending Dec. 24, following $3.245 billion of outflows the previous week, bringing the overall assets to $133.17 billion, in line with the Money Fund Report, a weekly publication of EPFR.
The common seven-day easy yield for all tax-free and municipal money-market funds rose to three.08% from 2.49% the week prior.
Taxable money-fund assets saw $53.782 billion added to finish the reporting week after $12.075 billion of outflows the week prior.
The common seven-day easy yield for all taxable reporting funds was at 4.15% versus 4.27% the week prior.
“The provision that involves market through the secondary, the BWICs and whatnot, doesn’t typically overwhelm because there is no substantial latest issuance that might require full participation,” Timlin said. “Since it’s primarily the secondary supply that is going to drive any movement, typically brokers are greater than willing to handle it. In order that they do not put any bids on; they simply form of back them off somewhat bit.”
When the market “gets back to work” on Jan. 2, there’s typically a wall of cash that comes due between maturities and coupon payments that should get reinvested, and frequently, latest issuance doesn’t initiate again for 2 weeks, he said.
So there is a two-week window where “it’s just about dealer inventory that gets taken down, and it’s just ‘rinse and repeat,'” Timlin said.
The market is somewhat bifurcated now: there’s money sitting on the sidelines, while there’s also risk, he said.
The chance markets are going “gangbuster,” and munis, that are a defensive asset class, have done quite well because there’s been more demand and more cash out “floating around within the ether,” than supply, in line with Timlin.
“That is form of the backdrop from 2025 is that you simply’re seeing an environment where individuals are going to be selective with what is going on on,” he said.
And heading into next 12 months, technicals will improve pretty substantially in January, he said.
The potential record levels of issuance, of $500 billion or more, will likely be “well received,” Timlin noted.
“And even when it is not, at the very least initially, any price adjustments that come forth will easily be digested,” he said.
There’s a lot money on the sidelines that if it backs off an excessive amount of, people will deploy a few of those money assets into munis, he said.
“So any volatility about will likely be short-lived, and valuation should creep back to more fair to richer valuations,” Timlin said.
The 2-year municipal to UST ratio Thursday was at 65%, the five-year at 65%, the 10-year at 67% and the 30-year at 82%, in line with Municipal Market Data’s 1 p.m. EST read. ICE Data Services had the two-year at 65%, the five-year at 65%, the 10-year at 67% and the 30-year at 81% at 3 p.m.
AAA scales
MMD’s scale was unchanged: The one-year was at 2.86% (unch) and a couple of.82% (unch) in two years. The five-year was at 2.87% (unch), the 10-year at 3.08% (unch) and the 30-year at 3.92% (unch) at 3 p.m.
The ICE AAA yield curve was little modified: 2.90% in 2025 and a couple of.84% in 2026. The five-year was at 2.88%, the 10-year was at 3.08% and the 30-year was at 3.87% at 3 p.m.
Bloomberg BVAL was little modified: 2.97% (+1) in 2025 and a couple of.82% (unch) in 2026. The five-year at 2.90% (unch), the 10-year at 3.14% (unch) and the 30-year at 3.85% (unch) at 3 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.88% (unch) in 2025 and a couple of.81% (unch) in 2026. The five-year was at 2.87% (unch), the 10-year was at 3.08% (unch) and the 30-year yield was at 3.87% (unch) at 3 p.m.
Treasuries were mixed.
The 2-year UST was yielding 4.33% (flat), the three-year was at 4.355% (flat), the five-year at 4.433% (-1), the 10-year at 4.577% (-1), the 20-year at 4.843% (flat) and the 30-year at 4.762% (flat) at 3:30 p.m.
Lynne Funk contributed to this report.