Munis flat as ICI reports $2B of inflows

Bonds

Municipal bonds were stable on Wednesday as the market remained mostly unchanged on the last full trading day of 2020. Thursday will see an early close with a full close on Friday. Trading will resume on Monday, Jan. 4, 2021.

Residual position-squaring is about all that is happening this week — and much of last — as yields have held steady since Dec. 17 and will close out the year the same.

“The risk-on, risk-off theme won’t be much of an influence for tax-exempts for at least a week or so until the calendar builds,” said Kim Olsan, senior vice president at FHN Financial.

Broad themes such as continued solid inflows — ICI reports another $2 billion-plus — favorable tax-exempt yields in longer bonds and a smaller share of tax-exempt volume, which have been in place since November’s rally started can all be expected to carry over into 2021, she said.

“Unless a meaningful UST rally takes hold, cross-market relative value probably stays in the 70%-80% range for intermediate and long bonds — meaning tax-advantaged investors are benefitted more than cross-over interests,” Olsan said.

ICI: Muni bond funds see $2B inflow
Long-term municipal bond funds and exchange-traded funds saw combined inflows of $2.086 billion in the week ended Dec. 22, the Investment Company Institute reported Wednesday.

In the previous week, muni funds saw an inflow of $2.517 billion, ICI said.

Long-term muni funds alone had an inflow of $1.676 billion in the latest reporting week after an inflow of $1.789 billion in the prior week.

ETF muni funds alone saw an inflow of $410 million after an inflow of $728 million in the prior week.

Taxable bond funds saw combined inflows of $10.843 billion in the latest reporting week after a revised inflow of $5.598 billion in the prior week, originally reported as $5.519 billion.

ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $8.568 billion after a revised inflow of $15.504 billion in the previous week, originally reported as a $15.102 billion inflow.

Primary market
In one of the last actions of the year, BofA Securities priced $142.43 million of remarketings for Republic Services Inc. The deals included the Pennsylvania Economic Development Financing Authority’s (NR/BBB+&A2/NR/NR) $15.385 million of Series 2010B solid waste refunding revenue bonds not subject to the alternative minimum tax and the California Municipal Finance Authority’s (NR/BBB+&A2/NR/NR) $127.045 million of Series 2010 non-AMT solid waste refunding revenue bonds

There are no other deals left on the calendar for this year.

Secondary market
Some notable trades on Wednesday included:

Georgia State 5s of 08/01/2027 [373385GN7] traded in a block of over 5 million at 130.236 at a yield of 0.345%, the 5s of 08/01/2029 [373385GQ0] traded in a block of over 5 million at 136.971 at a yield of 0.575%, and the 5s of 08/01/2028 [373385GP2] traded in a block of over 5 million at 133.715 at a yield of 0.465%.

California State Department of Water Resources 5s of 12/01/2026 [13067WRT1] traded in a block of over 5 million at 127.846 at a yield of 0.255%.

High-grade municipals were mostly unchanged again on Wednesday, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields were steady at 0.13% in 2021 and 0.14% in 2022. Out longer, the yield on the 10-year muni was flat at 0.71% while the yield on the 30-year remained at 1.39%.

The 10-year muni-to-Treasury ratio was calculated at 76.5% while the 30-year muni-to-Treasury ratio stood at 83.5%, according to MMD.

The ICE AAA municipal yield curve showed short maturities flat at 0.13% in 2021 and at 0.15% in 2022. The 10-year maturity was at 0.69% while the 30-year yield was at 1.42%.

The 10-year muni-to-Treasury ratio was calculated at 74% while the 30-year muni-to-Treasury ratio stood at 85%, according to ICE.

The IHS Markit municipal analytics AAA curve showed yields moving lower to 0.11% in 2021 and 0.12% in 2022. The 10-year dipped to 0.64% while the 30-year yield slipped to 1.34%.

Treasuries were stronger as stock prices traded up.

The three-month Treasury note was yielding 0.07%, the 10-year Treasury was yielding 0.93% and the 30-year Treasury was yielding 1.66%. The Dow rose 0.20%, the S&P 500 increased 0.12% and the Nasdaq gained 0.20%.

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