Munis have been a contact firmer out lengthy in Wednesday’s buying and selling, as U.S. Treasury yields fell and equities ended up.
The 2-year muni-UST ratio Tuesday was at 65%, the five-year at 63%, the 10-year at 71% and the 30-year at 89%, based on Municipal Market Knowledge’s 3 p.m. EDT learn. ICE Knowledge Providers had the two-year at 62%, the five-year at 61%, the 10-year at 70% and the 30-year at 89% at a 3 p.m. learn.
The Funding Firm Institute Wednesday reported inflows of $1.114 billion for the week ending Sept. 24, following $1.138 billion of inflows the earlier week. That is the third consecutive week that inflows topped $1 billion.
Change-traded funds noticed outflows of $145 million after $953 million of inflows the week prior, per ICI information.
The municipal market had a subdued response to the federal government shutdown on Wednesday, primarily responding to the energy in USTs, which, in flip, was as a result of non-public payroll information bolstering the percentages of one other Federal Reserve fee reduce later this month.
Municipal credit face “minimal” threat from the newest authorities shutdown, however any disruption to key financial information releases “may enhance market uncertainty and complicate financial coverage choices” and “cloud the financial outlook,” stated Tom Kozlik, managing director and head of public coverage and municipal technique at HilltopSecurities.
“Traditionally, most shutdowns have been short-lived. Even the longest, through the earlier Trump administration, lasted 35 days (and was solely a partial shutdown) and had little if any significant affect on municipal credit score high quality,” he stated.
What may make this example completely different is the deeper divide between events and a decreased willingness to compromise, which may result in an extended disruption, Kozlik stated.
Muni credit in areas with a “excessive focus” of federal employees might face short-term spending pressures, however Hilltop doesn’t count on lasting harm.
“The underlying fundamentals of most municipal issuers stay robust, and we count on them to climate this era with out vital credit score stress,” Kozlik stated.
“The extra rapid concern,” he stated, “is the disruption to key financial information releases, which may enhance market uncertainty and complicate financial coverage choices. With the Fed relying closely on employment and inflation information, a shutdown that halts company reporting may cloud the financial outlook.”
Elsewhere, following the municipal market’s “strongest September efficiency in over a decade,” Lind Capital Companions is urging buyers to “rethink complacency” in mild of the compelling yield discrepancy between holding lower-yielding taxable money devices equivalent to U.S. Treasury payments versus investing in longer-term tax-exempt bonds, which yield way more.
Muni buyers “at the moment are confronted with a totally new alternative price calculus to contemplate” and “might have run out of time” if they do not act, J. Robert Lind, principal and founding father of Lind Capital Companions, stated in a month-to-month commentary
In September, “buoyed by Treasury market stability and favorable technicals, funding grade municipal bonds posted their second consecutive month of optimistic efficiency and greatest September returns since 2009,” Lind stated.
Munis noticed positive aspects of two.32% in September, bringing year-to-date returns to 2.64%.
The principle catalyst was dovish feedback by Federal Reserve Chair Jerome Powell on the Fed’s Jackson Gap convention, adopted by the “final achievement of a fee reduce,” Lind stated.
Moreover, munis had a robust month in September attributable to a slowdown in provide, stated Cooper Howard, a hard and fast earnings strategist at Charles Schwab.
Issuance final month was at $44.595 billion,
“Regardless of the robust month, returns for munis nonetheless path most different main mounted earnings asset courses,” Howard stated. “We count on returns relative to Treasuries to proceed to get well assuming issuance stays in examine.”
And whereas September ended with “modest outflows, after 5 straight weeks of inflows, demand for municipal funds remained sturdy in September, with whole inflows approaching $4 billion,” Lind stated, noting inflows have been largely cut up between funding grade and excessive yield, which is notable for prime yield, because it represents solely a fraction of the general municipal market.
Trying ahead, Lind Capital Companions warned muni buyers to keep away from the excessive alternative price of “hiding out” in short-term taxable devices, equivalent to T-bills and cash market funds.
Over the previous two years, buyers did “pretty properly” with this technique, because the annualized whole return on one-year T-bills through the interval was 4.73%, Lind stated.
Nevertheless, the agency warned, “they’re now confronted with a totally new alternative price calculus to contemplate.”
Two years in the past, the agency famous, the yield on one-year T-bills was 5.50%, now practically 200 foundation factors decrease at 3.60%.
In the meantime, yields on longer-dated bonds have remained “comparatively secure,” Lind stated.
The 30-year U.S. Treasury bond was yielding 4.70% on Sept. 30, 2023, and now yields 4.73%, he stated.
Longer-dated non-rated munis “carried a tax-exempt yield of seven.00% in September 2023 and have tightened very modestly, yielding 6.75% as we speak,” Lind stated.
“In a secure fee setting, investing in 12-month T-bills generates a 2.07% after-tax whole return,” Lind stated, “not practically as engaging because it was two years in the past.
“Buyers at the moment are sacrificing 4.69% per yr (after-tax) in comparison with a 20-year non-rated tax-exempt bond yielding 6.75%. In a modestly declining fee setting, that chance price grows to 6.76% per yr (once more, after-tax). Buyers who’ve remained in money options could be clever to contemplate how these new alternative prices have an effect on their portfolios and their capability to attain their long-term objectives, ” he stated.
Within the main market Wednesday, Wells Fargo priced $1.01 billion of Los Angeles Division of Water and Energy (Aa2//AA-/AA/) energy system income bonds, Sequence 2025C. The difficulty consisted of 5s of seven/2030 priced to yield 2.83%, 5s of seven.2035 to yield 3.26%, 5s of seven/2040 to yield 3.92%, 5s of seven/2045 to yield 4.34%, 5s of seven/2051 to yield 4.57%, and 5s of seven/2055 to yield 4.62%.
Goldman Sachs priced $960.73 million California Group Alternative Financing Authority Clear Power Mission Income Bonds Sequence 2025E (Inexperienced Bonds) (Aa2///) as 5s of 5/2034 to yield 3.62% and 5s of 5/2035 to yield 3.78%.
BofA Securities priced $182.545 million income and refunding bonds for the North East Texas Regional Mobility Authority. The deal included $134.63 million of Sequence 2025 senior lien bonds priced as 5s of 1/2026 to yield 2.77%, 5s of 1/2030 to yield 2.83%, 5s of 1/2035 to yield 3.38%, 5s of 1/2040 to yield 4.02%, 5.25s of 1/2045 to yield 4.45%, and 5.25s of 1/2046 to yield 4.50%.
The difficulty additionally included $47.915 million Sequence 2025B subordinate lien income refunding bonds priced as 5s of 1/2026 to yield 2.87%, 5s of 1/2030 to yield 2.96%, 5s of 1/2035 to yield 3.54%, 5s of 1/2040 to yield 4.26%, 5.25s of 1/2045 to yield 4.65%, and 5.25s of 1/2046 to yield 4.70%.
J.P. Morgan priced $179.39 million of Sequence 2025A well being care amenities income bonds for the Birmingham Particular Care Amenities Financing Authority, Alabama, (/AA-/AA-/) (Kids’s Hospital). The deal included 5s of 6/2030 to yield 2.72%, 5s of 6/2040 to yield 4.03%, 5.25s of 6/2045 to yield 4.42%, 5.25s of 6/2050 to yield 4.56%, and 5.25s of 6/2055 to yield 4.64%.
BofA Securities priced $164.68 million adjustable-rate income bonds for the Elsinore Valley Municipal Water District Financing Authority (/A-1/F1/) to yield 1.90% in 7/2055.
Ramirez priced $149.12 million Cook dinner County, Illinois, (/AA-/AA/AAA/) gross sales tax income bonds as 5s of 11/2025 to yield 2.77%, 5s of 11/2030 to yield 2.65%, 5s of 11/2035 to yield 3.29%, 5s of 11/2040 to yield 3.96%, 5s of 11.2045 to yield 4.47%, and 5s of 11/2049 to yield 4.66%.
AAA scales
MMD’s scale was bumped out lengthy: 2.38% (unch, no Oct. roll) in 2026 and a pair of.30% (unch, no Oct. roll) in 2027. The five-year was at 2.32% (unch, no Oct. roll), the 10-year was at 2.91% (-1bp, no Oct. roll) and the 30-year was at 4.21% (-3) at 3 p.m.
The ICE AAA yield curve noticed small bumps out: 2.34% (-1) in 2026 and a pair of.27% (+1) in 2027. The five-year was at 2.30% (+1), the 10-year was at 2.91% (-2) and the 30-year was at 4.23% (-2) at 3 p.m.
The S&P World Market Intelligence municipal curve was bumped out lengthy: The one-year was at 2.36% (unch) in 2025 and a pair of.26% (unch) in 2026. The five-year was at 2.30% (unch), the 10-year was at 2.92% (-1) and the 30-year yield was at 4.21% (-3) at 3 p.m.
Bloomberg BVAL was bumped one to 2 foundation factors: 2.27% (-1) in 2025 and a pair of.24% (-1) in 2026. The five-year at 2.28% (-1), the 10-year at 2.89% (-2) and the 30-year at 4.22% (-2) at 3 p.m.
Treasuries have been firmer.
The 2-year UST was yielding 3.542% (-7), the three-year was at 3.556% (-7), the five-year at 3.679% (-6), the 10-year at 4.103% (-5), the 20-year at 4.676% (-3) and the 30-year at 4.713% (-2) at 3 p.m.
Major to come back
The Decrease Alabama Fuel District (A1///) is about to cost $678.14 million of fuel mission income refunding bonds, Sequence 2025A. Goldman Sachs.
Riverside County is about to cost Thursday $148.1 million of Teeter Plan obligation notes, Sequence 2025A. Loop Capital Markets.
Jessica Lerner contributed to this story.
