Municipal trading was light and triple-A benchmarks were a touch stronger on the short end as the last of the week’s larger-than-usual calendar closed accounts and the municipal market largely charted its own course.

For the 20th consecutive week, Refinitiv Lipper reported inflows into municipal bond mutual funds, this time $1.727 billion, with high-yield seeing $578.9 million of the total.

Municipal-to-UST ratios were at 66% for the 10-year and the 30-year was at 72%, according to Refinitiv MMD. ICE Data Services had the 10-year muni-to-Treasury ratio at 67% and the 30-year at 71%.

In the primary, Citigroup Global Markets Inc. priced $810.76 million of Salt Lake City International Airport revenue bonds for Salt Lake City, Utah, (A2/A//AA-). The first tranche, $685.4 million of AMT bonds, saw 5s of 2022 yield 0.21%, 5s of 2026 at 0.64%, 5s of 2031 at 1.25%, 5s of 2036 at 1.51%, 5s of 2041 at 1.66%, 5s of 2046 at 1.81% and 5s of 2051 at 1.86%.

The second, $125.355 million of non-AMT bonds, saw 5s of 2022 at 0.14%, 5s of 2026 at 0.53%, 5s of 2031 at 1.09%, 5s of 2036 at 1.31%, 5s of 2041 at 1.46%, 5s of 2046 at 1.61% and 5s of 2051 at 1.66%.

Piper Sandler & Co. priced for the Oregon Education District (Aa2/AA//) $660.4 million of full faith and credit pension obligation bonds.

On the buy-side of the market, technicals are keeping investors engaged, despite lower yields and relative value ratios, according to Jeffrey Lipton, managing director of credit research at Oppenheimer.

“With muni yields grinding lower overall for now, retail investors are searching for value and institutional buyers are showing interest more in the front end of the curve,” Lipton said.

Benchmark, tax-exempt municipal yields are holding steady while U.S. Treasuries 10-years and out are revealing downward price pressure, thus pushing relative value ratios lower yet again, according to Lipton.

“While the present tone is firmer, muni market participants have to wonder where we go from here,” he said. “For their part, municipal bonds are more than happy to take the risk-off trade to heart, being escorted to higher price levels by UST.”

“The muni tone had already been favorable given compelling technicals underscored by seasonal reinvestment demand, and we have witnessed plenty of occasions whereby munis set out on their own course regardless of direction taken by Treasury prices,” Lipton said.

He said municipals underperformed U.S. Treasuries lately, given what he called a “tried and true dynamic” whereby municipals tend to underperform a bond market rally and outperform a sell-off.

“Given the recently full plate of muni issuance, opportunities can present themselves to investors seeking reinvestment product, with structure and credit choices being made available,” Lipton said.

“The muni asset class seems to be operating on all cylinders as credit quality proves resilient with stabilizing forces noted across many sector types, inflows have been decidedly positive for 20 consecutive weeks, new-issue underwritings are being upsized and repriced at lower yields with strong placement, secondary market trading activity continues with strong demand, and as the asset class is outperforming other fixed income alternatives year-to-date.” Lipton said.

“We suspect that had it not been for very constructive muni technicals and a still sanguine-enough outlook for higher taxes despite a loss of momentum for putting through President Biden’s tax increases that have been targeted to pay for his national infrastructure plan,” he added, “munis would likely be underperforming Treasuries by a wider margin in July.”

Demand is expected to remain strong, at least through the summer reinvestment cycle whereby market participants will be confronted by a rather pronounced net negative supply backdrop, according to Lipton.

At the same time, he said the market is growing less certain that higher taxes will surface.

“Unless an unforeseen event comes about, we expect the 10-year benchmark muni yield to largely trade below 1% through much of the second half of the year with a year-end target range of 0.80% to 1.0%,” Lipton said. “A weaker technical position and/or an accelerated tapering could move this range higher, while renewed momentum for higher taxes could generate a lower forecast,” he added, noting, he expects ratios to stay within their current range through the balance of the year.

“July is seeing a decent amount of risk-off sentiment with participants signaling renewed global concerns over what appears to be an expanding Greek alphabet soup of COVID variants along with the attendant implications for the recovery and future growth prospects at the expense of more enduring inflationary evidence,” Lipton said.

“Perhaps current market events will alleviate some of the expectations for the conclusion of next week’s FOMC meeting,” he added.

Lipton continues to hold a rather favorable view of the national economic outlook, and remains cognizant of evolving headwinds that may cause a deviation from the presently charted course.

“The current pace of economic momentum may be difficult to sustain, but we do acknowledge just how fast sentiment can change in either direction and so we caution investors against betting too heavily on a push to lower, sustainable yields,” Lipton said.

Secondary trading and scales
North Carolina 5s of 2022 at 0.05%. Fairfax County, Virginia, 5s of 2022 at 0.05%. Maryland 5s of 2022 at 0.06%. Florida PECO 5s of 2022 at 0.06%.

Maryland 5s of 2024 at 0.16%-0.15%. Forsyth County, Georgia, 5s of 2025 at 0.27%. California 5s of 2025 at 0.28%. New York City water 5s of 2025 at 0.20%.

University of North Carolina-Chapel Hill 5s of 2035 at 1.00% versus 0.97% Wednesday. Hennepin County 5s of 2036 at 1.10%-1.08%.

Los Angeles Department of Water and Power 5s of 2048 traded at 1.37%.

According to Refinitiv MMD, yields were stronger at 0.05% in 2022 (-1) and 0.08% in 2023 (-2). The yield on the 10-year was steady at 0.83% while the yield on the 30-year was at 1.36%.

ICE municipal yield curve showed yields steady at 0.06% in 2022 and down one to 0.09% in 2023. The 10-year maturity at 0.85% and the 30-year yield sat at 1.35%.

The IHS Markit municipal analytics curve was steady at 0.07% and 0.10% in 2022 and 2023, with the 10-year at 0.83%, and the 30-year yield at 1.35%.

Bloomberg BVAL also saw levels steady at 0.07% in 2022 and 0.09% in 2023 while the 10-year held at 0.83% and the 30-year sat at 1.35%.

Treasuries fell and equities were in the green. The 10-year Treasury was yielding 1.259% and the 30-year Treasury was yielding 1.897% near the close. The Dow Jones Industrial Average gained 65 points or 0.16%, the S&P 500 rose 0.22% while the Nasdaq gained 0.37%.

Refinitiv Lipper reports $1.7B inflows
In the week ended July 21, weekly reporting tax-exempt mutual funds saw $1.727 billion of inflows, according to Refinitiv Lipper. It followed an inflow of $2.238 billion in the previous week.

Exchange-traded muni funds reported inflows of $281.796 million, after inflows of $484.952 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.445 billion after inflows of $1.753 billion in the prior week.

The four-week moving average remained positive at $1.772 billion, after being in the green at $1.819 billion in the previous week.

Long-term muni bond funds had inflows of $1.098 billion in the latest week after inflows of $1.570 billion in the previous week. Intermediate-term funds had inflows of $131.699 million after inflows of $263.452 million in the prior week.

National funds had inflows of $1.630 billion after inflows of $2.100 billion while high-yield muni funds reported inflows of $578.932 million in the latest week, after inflows of $654.351 million the previous week.

The economic recovery continues at an uneven pace, analysts say, supporting the Federal Reserve’s accommodative monetary policy.

“A wrath of mixed economic data provided another dovish vote of confidence for the Fed,” said Ed Moya, senior market analyst for the Americas at OANDA.

“Taken as a whole we get the picture that the economic recovery is continuing, though not necessarily in a straight line and not always as quickly as economists might predict,” said Steve Sosnick, chief strategist at Interactive Brokers. “That said, none of the misses or revisions changed the overall scenario.”

Initial jobless claims rose to 419,000 in the week ended July 17, on a seasonally adjusted basis, from an upwardly revised 368,000 the week before, first reported as 360,000 claims.

Economists polled by IFR Markets expected 350,000 claims in the week.

Continuing claims fell to 3.236 million in the week ended July 10, from an upwardly revised 3.265 million in the prior week, initially reported at 3.241 million.

Economists estimated 3.100 million continuing claims.

“An unexpected increase in jobless claims did not unnerve investors as seasonal adjustment factors may have played into the big miss,” said Moya, noting adjustments in the auto industry summer shutdowns and some states returning to “stricter restrictions.”

One miss, he said, “does not suggest the downward trend is over.”

Sosnick agreed, the numbers are “not sufficiently worrisome that one can convincingly argue that economic progress is impeded.”

Also released Thursday, existing home sales increased 1.4% in June to a seasonally adjusted annual rate of 5.86 million, after a revised rate of 5.78 million in May, first reported as 5.80 million.

Economists predicted 5.90 million sales.

The number of homes on the market grew 3.3% in June to 1.25 million, the National Association of Realtors reported, about a 2.6-month supply.

“Supply has modestly improved in recent months due to more housing starts and existing homeowners listing their homes, all of which has resulted in an uptick in sales,” said NAR Chief Economist Lawrence Yun.

The median existing home price climbed to $363,300 in June from $350,400 in May and is 23.4% higher than a year ago.

“Since we all need a place to live, that should be considered a sign of inflation in a key sector of the economy,” Sosnick said. “Does the Fed see that as simply asset price appreciation (like stocks and bonds), and little to worry about, or is that enough to spur concern about mortgage-backed purchases?”

In other data, the Leading Economic Index grew 0.7% to 115.1 in June after a 1.2% gain a month earlier, while the coincident index ticked up 0.4% to 105.5 after a 0.5% rise a month earlier, and the lagging index was flat at 105.8 after a 0.6% climb a month earlier, the Conference Board reported Thursday.

Economists anticipated the leading index would increase 0.9%.

The report “showed growth is slowing down but still remains fairly upbeat all the way through 2022,” Moya said.

Separately, the Kansas City region manufacturing sector activity “continued to expand in July and expectations remain positive,” said Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City. “However, 89% of firms reported supply chain issues and 91% reported labor shortages.”

The composite index gained to 30 in July from 27 in June. The number of employees index ticked up to 27 from 26. Prices received for finished product index gained to 52 from 48, while prices paid for raw materials dipped to 78 from 79.

“The central part of the country continues to have strong factory activity,” Moya said. “The manufacturing sector is sending mixed signals, with strong activity from the Empire State and Kansas City, but softness from Philadelphia and Chicago.”

Meanwhile, the Federal Reserve Bank of Chicago’s National Activity Index fell to positive 0.09 in June from positive 0.26 in May, first reported as positive 0.29.

The CFNAI-MA3, the three-month moving average, decreased to positive 0.06 in June from positive 0.80 in May, originally reported as positive 0.81, while the diffusion index dropped to positive 0.13 from positive 0.40 last month, originally reported as positive 0.39.

A zero reading suggests the national economy is growing at its usual pace.

Chip Barnett contributed to this report.