Money Firm The market tone remains positive

The municipal market tone remains positive with the million being firmer again. US Treasury yields fell and stocks closed in the black.

Triple-A benchmarks bumped by two to four basis points, depending on the metric, pushing the single-year down to less than 2.50%. Underground tank revenue decreased by three to nine basis points.

The three-year muni-UST rate was 58%, five-year at 62%, 10-year at 67% and 30-year at 90%, according to the final Refinitiv MMD reading at 3 p.m. ET. ICE data services have all three at 57%, five at 60%, 10 at 67%, and 30 at 89% at 4 p.m.

“The local market is off to a great start in 2023, which is not surprising considering the huge price rally that occurred in 2022,” said Roberto Ruffo, Managing Director and Portfolio Manager at SWBC Investment Services LLC.

“With interest rates not at levels not seen in a long time,” Ruffo said, “I think investors are focusing on overall interest rate levels rather than cheap ratios of the rich.”

He added that the short end of the municipal yield curve provides a good example, with one- to seven-year rates ranging from the low 50% range to the mid 60% level and demand remains “very strong” because of the absolute interest rate levels, he said.

Ruffo said investors see a slowing economy that may be heading into recession and still high but moderate inflation levels. It is believed that these two factors will drive the market for the rest of the year.

Ruffo added, “The widespread belief is that the Federal Reserve is close to raising interest rates and that the economic slowdown and low inflation will reinforce this belief, which in turn will create additional demand for municipal bonds.”

Meanwhile, elsewhere in the buy-side market, higher coupons are trending among investors hungry for supply and yield.

A New York-based trader said Wednesday that he sees a trend in the bid and ask for coupons increasing by 5% between the ages of eight and 15.

Because the spreads on these 5% coupon bonds — rated single and double A — are so compressed compared to the general yield curve, triple A, they are increasingly attractive, especially amid an aggregate supply shortage, he said.

“Investors are piling on that part of the curve,” he said.

The trader said this trend could continue throughout the first quarter — until prices get cheaper or issuers start bringing deals to the market.

“Exporters are not bold in knowing how to enter the market,” he said.

“It’s been a really exciting start to the year,” said Rick Fogliano, head of municipal products at TD Securities.

“There is no supply, and we went in last year without supplies,” he said.

“So there was the January effect and a lot of people got cash and suddenly people started buying,” Fogliano said. “We see it through the tax credit [space] And also some taxable bonds.”

But unlike in 2022, when the world was still reeling from the pandemic, he said, there is now a sense of stability in Monis despite market uncertainty, such as more Fed rate hikes and the potential severity of a recession.

“The investor and issuer are cautiously optimistic about the year and expect things to at least stabilize at some point where we can get back to a more normal state, but most expect some kind of volatility one way or another in the coming months and the rest of the year,” Fogliano said.

He expects things to go much more smoothly this year compared to 2022 as there will be no “those initial jerky moves”.

Traders continue to sell aggressively and pick up their points.

“The story of the year will be the show and how it will turn out,” he said.

After some good years, supply has declined, and Fogliano believes investors will return to a fixed-income product that’s more stable and feels safer.

Inflation remains a factor, Fogliano says, “It’s hard to buy a fund when you don’t cover the inflation number.” But he said that with lower inflation, fixed income becomes more interesting and will find buyers.

Regarding the supply and demand dynamic, he said, “The money that needs to be invested – or the alternative gets nothing – will be invested.”

Investors are cautious about what they buy, as they trade in better names and higher returns lag behind higher-quality names.

Once supply picks up, which will happen at the end of the month or early February, he said, things will start to return to normal.

Mooney was very rich, but at the moment, he said, they are trying to cheapen a little. However, as the UST moved in, the monies “chased casually, so things got tighter” but generally got cheap.

Last week, Mooney followed the rise in TBs, but there was also demand for tax-exempt bonds, Novin strategists Anders S. Pearson and John V. Miller said.

They expect “this to continue over the next few weeks as the huge reinvestment coupon still needs to be invested on January 1st,” while “the new offering should remain silent over the same period.”

Fogliano noted that January is a “huge” month for reinvestment.

“No matter if the market is cheap or rich, there is a lot of liquidity,” he said. “So people continue to look forward to investing.”

When the taxable market sold off in December, muni-UST ratios were “not great,” he said, but “they went back the other way as things started to pick up.”

Traditional mutual funds continued to lose assets. Lieber reported another inflow of more than $3 billion last week: “An unusual start to a new year where risk-based investing usually prevails,” said Matt Fabian, partner at Municipal Market Analytics.

“If these money flows reverse, which seems likely at least after the December jobs report, the tone of the tax breaks could turn unsustainably positive in short order, sending down already low ratios,” he said.

Muni-UST for 10 years is 67%. Although it rose last week due to an “exceptional rise in underground reservoirs,” it is still “near the bottom of the range that has been established over the past year.”

He said: “But as this is still a period of average development (versus rebound), lower rates are less likely to dampen demand than in the past; in fact, the expected medium-term scarcity in the exempt product could Taxes to ensure lower proportions from now on.”

Outflows fell, with the Investment Firm Institute reporting that investors pulled out $3.157 billion from mutual funds in the week ending Jan. 4, following $3.402 billion in outflows the week before.

Exchange-traded funds saw inflows of $864 million after $679 million in inflows the previous week, according to ICI data.

In the primary market on Wednesday, Wells Fargo priced the Utah Board of Higher Education (Aa1/AA+ //) $154.380 million University of Utah Green General Revenue Bonds, Series 2022A, with 5s of 8/2025 at 2.27%, 5s of 2028 at 2.28 %, 5s of 2033 at 2.45%, 5s of 2038 at 3.12% and 5s of 2042 at 3.36%, callable 8/1/2032.

In a competitive market, the State of Colorado sold $425 million of Education Loan Program Tax Memos and Revenue Projection Series 2022B. The state sold $50 million to BofA Securities with 5s of 2022 at 2.52%.

The country also sold $100 million to Citigroup Global Markets with 5s of 2022 at 2.52%.

Colorado sold $175 million to JPMorgan Securities with 5s of 2022 also up 2.52%.

Additionally, the state sold $100 million to Morgan Stanley in two deals: $75 million of 2022 4s at 2.52% and $25 million of 2022 4s at 2.52%.

secondary trading
NYC 5s for 2024 up 2.42% vs. 2.47% -2.43% Tuesday and 2.72% on 1/3. Washington 5s for 2025 at 2.31% versus the original 2.35% on Tuesday. Maryland 5s for 2025 up 2.32% vs. 2.33% on Monday and 2.54% on 1/3.

Gilbert Water Resource Municipal Property Corp. , Arizona, 5s of 2030 up 2.28%. Triborough Bridge and Tunnel Authority 5s for 2031 at 2.64% vs. original 2.94% on 1/6.

Los Angeles DWP 5s for 2042 by 3.29% -3.28%. NYC TFA 5s for 2043 at 3.60% versus 3.65% Tuesday and 3.90% -3.89% on 1/5.

Massachusetts 5s for 2048 at 3.63%-3.62%. Waters of St. Johns County, Florida, 5 s from 2052 increased by 3.63%. The Illinois 5s Funding Authority for 2052 is down 4.32% -4.26% vs. 4.40% Monday and 4.52% -4.50% in 1/4.

AAA scales
The Refinitiv MMD scale bumped by two to four key points: one year at 2.48% (-4) and 2.32% (-2) at two years. The 5-year period was 2.27% (-2), the 10-year period at 2.38% (-3) and the 30-year period at 3.31% (-4).

The ICE AAA yield curve bumped by two to four basis points: at 2.46% (-2) in 2024 and 2.34% (-2) in 2025. The five-year period was at 2.27% (-3), and the 10-year period was at 2.38% (-4) and the 30-year return was 3.34% (-3) at 4 p.m.

The IHS Markit municipality curve hit three fundamental points: 2.48% (-3) in 2024 and 2.31% (-3) in 2025. The five-year period was 2.29% (-3), and the 10-year period was 2.40% (-3) And the 30-year return was at 3.33% (-3) at the 4 p.m.

Bloomberg bumped BVAL by two to four basis points: 2.47% (-4) in 2024 and 2.31% (-4) in 2025. Five-year at 2.27% (-4), 10-year at 2.38% (-4) ) and 30 years by 3.33% (-3).

Treasury bonds were better.

The 2-year UST yield was 4.218% (-3), three-year at 3.915% (-6), five-year at 3.655% (-6), seven-year at 3.598% (-7), and 10-year at 3.534% ( -8), the 20 year at 3.828% (-8) and the 30 year treasury was yielding 3.659% (-9) at 4 p.m.

Primary on Tuesday:
RBC Capital Markets for Plano ISD, Texas, (Aaa/AA+ //) $631.450M Unlimited Tax School Building Bonds, with 5s of 2/2024 up 2.53%, 5s of 2028 down 2.36%, 5s of 2033 2038 5s at 2.49%, 2038 5s at 3.15% and 2043 5s at 3.44%, callable 8/15/2032.

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