Flight From Equities Helps Extend Rally in Munis, Treasurys
Investor worries about the continued volatility in the stock market helped keep alive the rally in municipal and Treasury bonds on Thursday. Yields fell as much as five basis points according to the MBIS benchmark scale and as much as seven basis points on the MMD AAA scale.
Lower rates and global volatility are providing a challenging backdrop forinvestors as they ease into the New Year, according to one New York trader.
“There are so many cross currents from China and the trade wars to the government shutdown, and the House changing hands today,” the trader said. Thrown into the mix is the equity market volatility that could spark a flight to quality ahead of a large bounty of $9 billion in new issuance expected to hit the market next week, he said.
The new issue market is providing the best opportunity to find value in the municipal market. The current low rates, he said, are less than opportunistic for municipal investors. “A lot of people don’t really see themselves losing a lot by not participating.”
He said next week’s deals will have to come somewhat attractive compared with the secondary market for deals to get done, and should do well as long as Treasuries continue to get steady bids.
WINTERSTEIN SEES $375B YEAR
In his latest weekly market review, Stephen Winterstein, managing director and head of municipal strategy at Wilmington Trust, said he forecasts roughly $375 billion of issuance for the muni market in 2019, but added that several issues could factor into that number as the year progresses.
“First, while state and local governments remain stable, looming underfunded pension issues may repress the political will to borrow,” he said. “On the other hand, the need to maintain, improve, and expand infrastructure is omnipresent, and is unlikely to abate over the next year. These two countervailing forces may serve to offset one another, leaving the desire and need to issue debt untouched from last year.”
He also said that while looking at the current level and drift of interest rates, some may believe the economic cycle is approaching a near-term crest, and borrowing costs may stay flat or even edge slightly lower. And, if that sentiment materializes and endures, issuers could take a wait-and-see posture.
Municipal bonds were stronger on Thursday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as five basis points in the oneto 30-year maturities. High-grade munis were also stronger, with yields calculated on MBIS’ AAA scale falling as much as five basis points across the curve.
Municipals were stronger on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation falling seven basis points while the 30-year muni maturity dropped six basis points.
Treasury bonds were stronger amid continuing stock market volatility.
Tax-free municipal money market fund assets increased $712.3 million, raising their total net assets to $144.94 billion in the week ended Dec. 31, according to the Money Fund Report, a service of iMoneyNet.com.
The average seven-day simple yield for the 190 tax-free and municipal money-market funds increased to 1.28% from 1.25% last week.
Taxable money-fund assets gained $22.18 billion in the week ended Jan. 1, bringing total net assets to $2.849 trillion.
The average, seven-day simple yield for the 805 taxable reporting funds rose to 2.04% from 1.98% last week.
Overall, the combined total net assets of the 995 reporting money funds gained $22.89 billion to $2.994 trillion in the week ended Jan. 1. ◽