Municipals were weaker Thursday as the first market slowed and muni mutual funds saw inflows top $2 billion. U.S. Treasuries saw yields rise five years and out and equities ended mixed.
The 2-year municipal to UST ratio Thursday was at 64%, the five-year at 64%, the 10-year at 66% and the 30-year at 83%, in line with Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 65%, the five-year at 64%, the 10-year at 67% and the 30-year at 82% at 4 p.m.
“A full calendar has included a high dollar value of high-grade names, but the quantity will not be deterring bidders from pushing yields lower,” said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.
Prompted by a greater UST tone, munis proceed to “defy weak supply/demand fundamentals (lower redemptions, larger issuance) and as a substitute deal with actual yield opportunities,” she said.
Several large issues of comparable quality don’t ceaselessly come to market on the identical day, and buyers had a variety of names to select from Wednesday, she said.
Sales of Washington state and Nevada GOs “drew narrow spreads of +7-10/MMD within the 10-year maturities — when each can trade 3-5 basis points wider during weaker periods,” Olsan said. Comparable GO sales from AAA-rated Fairfax County, Virginia, and Mecklenburg County, North Carolina, also “drew snug spreads that in lots of maturities were flat or through AAA spot levels,” she said.
“Follow through trading on balances will probably be instructive for secondary bidsides within the near term,” Olsan said.
At the opposite end of the investment-grade range, she noted, “a final pricing of A2/A University of Maryland Medical System bonds had 5s due 2035 yielding +45/MMD and a $150 million maturity of a 5.25% due 2052 (call 2035) offering a 4.37% yield (+40/MMD).”
In each maturities, Olsan said, “the spreads were 13 to 27 basis points through indicative A-rated hospital spread averages of the last 12 months.”
Secondary activity implies “similar firm, if more cautious, flows,” she said.
January’s every day secondary trade volumes are at $7.6 billion, down 30% from last 12 months’s average, Olsan said.
As yields have been pushed lower this month, there appears to be support for all rating ranges, she said.
Month-to-date there was “modest outperformance” in AAA- and AA-rated credits, she said.
“Each sectors have rallied 17 basis points in 10-year tenors and currently sit at or near parity from the tip of 2024 (longer-dated bonds are inside 10-15 basis points of December’s closing levels)” from the month’s highs on Jan. 14, Olsan said.
“At a rolled-up level, AAA bonds (each GOs and revenues) have accounted for 26% of all January’s trades, and AA-rated volume has a 59% market share,” she said.
On a combined basis, Olsan said the 2 categories currently capture 5% more volume than over the past three months.
The only-A- and BBB-rated revenue sectors “carry a complete of 11% every day secondary volume, essentially flat to the prior three months’ share,” she said.
Implied yields in each sector have improved 13 basis points from mid-month highs, Olsan said, noting that in each cases, secondary opportunities and limited issuance have led to tighter bid conditions.
“A growing cadre of fund products on this space speaks to buyer demand for alpha away from high-grade credits,” she said.
Early returns this 12 months show preferences, in line with Olsan.
A Bloomberg Barclay’s AAA index is seeing gains of 0.12%, however the AA-rated index is simply up 0.04%. The only-A index posts positive returns of 0.18%, while the Baa-rated returns are at 0.29%.
In the first market Thursday, Morgan Stanley priced for the Massachusetts Development Finance Agency (/BBB+/A-/) $342.195 million of UMass Memorial Health Care Obligated Group revenue refunding bonds, Series N. The primary tranche, $242.195 million of Series N-1, saw 5s of seven/2026 at 3.09%, 5s of 2030 at 3.32%, 5s of 2035 at 3.64%, 5s of 2040 at 3.91%, 5s of 2045 at 4.36%, 5.25s of 2050 at 4.45% and 4.5s of 2054 at 4.67%, callable 7/1/2035.
The second tranche, $100 million of Series N-2, saw 5s of seven/2035 at 3.64%, callable 1/1/2035.
BofA Securities priced for Long Beach, California, (Aa2/AA+//) $119.945 million of non-AMT harbor revenue and revenue refunding bonds, Series 2025A, with 5s of 5/2026 at 2.50%, 5s of 2030 at 2.62%, 5s of 2035 at 2.97%, 5s of 2040 at 3.27% and 5s of 2042 at 3.48%, callable 11/15/2034.
Within the competitive market, Greenwich, Connecticut, sold $120 million of GO anticipation notes, Issue of 2025, to Wells Fargo, with 4s of two/2026 at 2.64%, noncall.
Fund flows
Investors added $2.028 billion to municipal bond mutual funds within the week ending Wednesday, following $251.7 million of outflows the prior week, in line with LSEG Lipper data. That was the biggest inflow figure since at the very least January 2023.
High-yield funds saw inflows of $555.7 million in comparison with the previous week’s inflows of $243.9 million.
Tax-exempt municipal money market funds saw outflows of $2.74 billion for the week ending Jan. 21, bringing total assets to $135.04 billion, in line with the Money Fund Report, a weekly publication of EPFR.
The typical seven-day easy yield for all tax-free and municipal money-market funds rose to 1.84%.
Taxable money-fund assets saw $11.31 billion added.
The typical seven-day easy yield was at 4.04%.
The SIFMA Swap Index rose to 2.96% Wednesday in comparison with the previous week’s 2.54%.
AAA scales
MMD’s scale was cut as much as 4 basis points out long: The one-year was at 2.72% (unch) and a pair of.74% (unch) in two years. The five-year was at 2.84% (unch), the 10-year at 3.07% (unch) and the 30-year at 4.02% (+4) at 3 p.m.
The ICE AAA yield curve was cut one to 4 basis points: 2.78% (+2) in 2026 and a pair of.80% (+1) in 2027. The five-year was at 2.86% (+2), the 10-year was at 3.09% (+2) and the 30-year was at 3.93% (+4) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut up to a few basis points: The one-year was at 2.73% (unch) in 2025 and a pair of.77% (+1) in 2026. The five-year was at 2.83% (+1), the 10-year was at 3.04% (unch) and the 30-year yield was at 3.92% (+3) at 4 p.m.
Bloomberg BVAL was cut up to a few basis points: 2.70% (unch) in 2025 and a pair of.76% (unch) in 2026. The five-year at 2.87% (+1), the 10-year at 3.12% (+1) and the 30-year at 3.96% (+3) at 4 p.m.
Treasuries were weaker five years and out.
The 2-year UST was yielding 4.285% (-2), the three-year was at 4.347% (-1), the five-year at 4.447% (+1), the 10-year at 4.641% (+3), the 20-year at 4.936% (+3) and the 30-year at 4.870% (+4) on the close.