Focus on primary slate; Mutual fund inflows top $1B

Bonds

Municipal bonds were little changed in secondary trading as the focus shifted to the primary market amid several large deals while municipal bond mutual fund inflows topped $1 billion. U.S. Treasuries were mixed and equities ended in the red.

Lipper reported fund inflows of $1.154 billion for the week ending Dec. 4, up from a revised $711.5 million the prior week.

High-yield municipal bond funds saw inflows of $534.1 million compared to $300.6 million the previous week.

Muni mutual fund flows saw another week of inflows “suggesting that investors are not yet tired of the market opportunity, continuing to be buyers,” said Chris Brigati, senior vice president and director of strategic planning and fixed income research at SWBC.

The two-year municipal to UST ratio Thursday was at 61%, the five-year at 63%, the 10-year at 65% and the 30-year at 82%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 62%, the five-year at 62%, the 10-year at 65% and the 30-year at 81% at 4 p.m.

Thursday was another busy day in the primary market.

“Coming off the past few weeks with a lighter supply dynamic, the larger calendar can be explained as a simple rebalancing for normal seasonal expectations,” Brigati said.

Brigati expects “strong demand” seen of late to continue.

“The question going forward, into what are typically favorable seasonals in December, is whether or not issuers will begin to throw more bonds into the market for fear of Republicans’ removing their access to the tax-exemption next year,” said Matt Fabian, a partner at Municipal Market Analytics.

Since 2013, December issuance has averaged $31 billion, but with a range of $21 billion to $56 billion, he said.

This year’s potential volume of $500 billion “seems more likely than not,” particularly if borrowers appreciate current risks, he said.

Eliminating or limiting the tax exemption may “hurt economic growth and throttle infrastructure investment nationwide,” said Matthew Norton, chief investment officer of municipal bonds at AllianceBernstein, and Daryl Clements, a municipal portfolio manager at the firm.

Both Democrats and Republicans seem to acknowledge “America’s need to improve and rebuild its infrastructure, which makes preserving tax exemption so important,” they said.

They believe the tax exemption will be “mostly preserved,” given its elimination would save Washington only about $40 billion in revenue annually, a fraction of the $6.5 trillion federal budget.

The elimination of the tax exemption would “throw infrastructure financing and the economic freedom of local communities into disarray — with little help to the national deficit,” Norton and Clements said.

In the primary market Thursday, Barclays priced and repriced for the New Jersey Transportation Trust Fund Authority (A2/A-/A/A) $1.5 billion of transportation program bonds, 2024 Series CC, with 5s of 6/2030 at 2.90%, 5s of 2034 at 3.10%, 5s of 2039 at 3.38%, 5s of 2044 at 3.72%, 4.125s of 2050 at 4.21%, 5.25s of 2050 at 3.95%, 4.125s of 2055 at 4.22% and 5.25s of 2055 at 4.03%, callable 12/15/2034.

J.P. Morgan Securities priced for the Greater Orlando Aviation Authority is set to price Thursday $772.65 million of AMT airport facilities revenue bonds, consisting of $139.665 million of senior bonds (Aa2/AA/AA/AA+) with 5s of 10/2025 at 3.36%, 5s of 2029 at 3.34%, 5s of 2034 at 3.58%, 5s of 2039 at 3.74%, 5.25s of 2044 at 3.99% and 5.25s of 2049 at 4.09%, callable 10/1/2034; and $632.985 million of subordinate bonds (Aa3/AA-/AA-/AA), with 5s of 10/2027 at 3.27%, 5s of 2029 at 3.37%, 5s of 2034 at 3.57%, 5s of 2039 at 3.77%, 5.25s of 2044 at 4.02%, and 5.25s of 2051 at 4.17%.

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