Municipals were weaker Thursday as the primary 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 two-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%, according to 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 volume is not deterring bidders from pushing yields lower,” said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.
Prompted by a better UST tone, munis continue to “defy weak supply/demand fundamentals (lower redemptions, larger issuance) and instead focus on actual yield opportunities,” she said.
Several large issues of similar quality do not frequently come to market on the same day, and buyers had a range of names to pick from Wednesday, she said.
Sales of Washington state and Nevada GOs “drew narrow spreads of +7-10/MMD in 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 many maturities were flat or through AAA spot levels,” she said.
“Follow through trading on balances will be instructive for secondary bidsides in the near term,” Olsan said.
At the other 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 both maturities, Olsan said, “the spreads were 13 to 27 basis points through indicative A-rated hospital spread averages of the last year.”
Secondary activity implies “similar firm, if more cautious, flows,” she said.
January’s daily secondary trade volumes are at $7.6 billion, down 30% from last year’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 has been “modest outperformance” in AAA- and AA-rated credits, she said.
“Both sectors have rallied 17 basis points in 10-year tenors and currently sit at or close to parity from the end of 2024 (longer-dated bonds are within 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 (both 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 two categories currently capture 5% more volume than over the last three months.
The single-A- and BBB-rated revenue sectors “carry a total of 11% daily 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 both cases, secondary opportunities and limited issuance have led to tighter bid conditions.
“A growing cadre of fund products in this space speaks to buyer demand for alpha away from high-grade credits,” she said.
Early returns this year show preferences, according to Olsan.
A Bloomberg Barclay’s AAA index is seeing gains of 0.12%, but the AA-rated index is only up 0.04%. The single-A index posts positive returns of 0.18%, while the Baa-rated returns are at 0.29%.
In the primary 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 first tranche, $242.195 million of Series N-1, saw 5s of 7/2026 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 7/2035 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.
In the competitive market, Greenwich, Connecticut, sold $120 million of GO anticipation notes, Issue of 2025, to Wells Fargo, with 4s of 2/2026 at 2.64%, noncall.
Fund flows
Investors added $2.028 billion to municipal bond mutual funds in the week ending Wednesday, following $251.7 million of outflows the prior week, according to LSEG Lipper data. That was the largest inflow figure since at least January 2023.
High-yield funds saw inflows of $555.7 million compared to 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, 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 rose to 1.84%.
Taxable money-fund assets saw $11.31 billion added.
The average seven-day simple yield was at 4.04%.
The SIFMA Swap Index rose to 2.96% Wednesday compared to the previous week’s 2.54%.
AAA scales
MMD’s scale was cut up to four basis points out long: The one-year was at 2.72% (unch) and 2.74% (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 four basis points: 2.78% (+2) in 2026 and 2.80% (+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 three basis points: The one-year was at 2.73% (unch) in 2025 and 2.77% (+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 three basis points: 2.70% (unch) in 2025 and 2.76% (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 two-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) at the close.