Municipal bond mutual funds saw the first large outflows of 2024, marking tax-deadline selling pressure coinciding with higher rates and volatile U.S. Treasury market moves.
LSEG Lipper reported $1.47 billion of outflows from municipal bond mutual funds for the week ending April 17, “as higher rates and tax liabilities drove outflows from both [exchange-traded funds] (-$815 million) and open-end funds (-$658 million),” noted J.P. Morgan in a market note.
High-yield funds broke their 14-week inflow streak and saw the first outflows since Jan. 3 at negative $48 million.
Municipals were little changed Thursday, though, as the last of the week’s new issues priced while U.S. Treasury yields rose and equities ended mixed.
The two-year muni-to-Treasury ratio Thursday was at 63%, the three-year at 62%, the five-year at 59%, the 10-year at 59% 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 64%, the three-year at 63%, the five-year at 60%, the 10-year at 61% and the 30-year at 82% at 3:30 p.m.
The muni market is “largely tracking” movements in the rest of the bond market as it grapples with the reduced probability of the Fed cutting interest rates, said Bob Dimella, executive managing director and co-head of MacKay Municipal Managers.
“Tax-exempt trade flows over the last week suggest a curve bifurcation of sorts: nearly an equal amount of bonds being traded in one-year maturities (27%) as those past 12 years (31%),” said Kim Olsan, senior vice president of trading at FHN Financial.
The irony, she noted, is “that yields in the front half 2025 high grades are around 3.50%, as are those in the 15-year range.”
Maturities between 2037 and 2040 in various new issues are “capturing the largest interest and that in secondary bids wanteds that range in call-protected 5s is scantly available due to replacement challenges,” according to Olsan.
More broadly, she said “gyrations in taxable yields have put munis more on a defensive track given weaker seasonal conditions (lower reinvestment flows/elevated supply).”
The overall level of new issuance is “good and healthy,” helping with price discovery, Dimella said.
In the primary market Thursday, Barclays priced for the Washington State Housing Finance Commission (/BBB-//) is set to price Thursday $189.995 million of Radford Court and Nordheim Court Portfolio nonprofit revenue bonds, Series 2024, with 5s of 7/2028 at 3.78%, 5s of 2029 at 3.78%, 5s of 2034 at 3.86%, 5s of 2039 at 4.34%, 5.5s of 2044 at 4.59%, 5.5s of 2049 at 4.84%, 5s of 2054 at par and 5.5s of 2059 at 5.05%, callable 7/1/2034.
Goldman Sachs price for the Oregon Department of Administrative Services (Aa2/AAA//AAA/) $152.175 million of tax-exempt Oregon State Lottery revenue refunding bonds. The first tranche, $97.365 million of project bonds, 2024 Series A, saw 5s of 4/2025 at 3.48%, 5s of 2029 at 2.87%, 5s of 2039 at 3.33% and 5s of 2044 at 3.79%, callable 4/1/2034.
The second tranche, $29.600 million of 2024 Series C, saw 5s of 4/2025 at 3.48% and 5s of 2027 at 3.10%, noncall.
The third tranche, $25.210 million of 2024 Series D, saw 5s of 4/2025 at 3.48%, noncall.
Goldman Sachs priced for the Arizona Board of Regents (Aa3/AA-//) $151.500 million of Arizona State University SPEED revenue bonds, Series 2024, with 5s of 8/2025 at 3.39%, 5s of 2029 at 2.96%, 5s of 2034 at 3.02%, 5s of 2039 at 3.44%, 5s of 2044 at 3.98%, 5s of 2049 at 4.22% and 5s of 2054 at 4.29%, callable 8/1/2034.
In the competitive market, Clark County School District, Nevada, (A1/AA//) sold $200 million of limited tax GO building bonds, Series 2024A, to J.P. Morgan, with 5s of 2025 at 3.46%, 5s of 2029 at 3.04%, 5s of 2034 at 3.09%, 5s of 2039 at 3.54% and 4s of 2044 at 4.25%, callable 6/15/2034.
Albuquerque, New Mexico, (/AAA//) sold $102.850 million of GO general purpose bonds, Series 2024A, to BofA Securities, with 5s of 7/2025 at 3.34%, 5s of 2029 at 2.84%, 4s of 2034 at 3.15% and 4s of 2039 at 3.75%, callable 7/1/2031.
The city also sold $9 million of GO storm sewer bonds, Series 2024B, to BofA Securities, with 4s of 2039 at 3.75% and 4s of 2040 at 3.85%, callable 7/1/2031.
The pace of issuance happens at a time when “the balances in the marketplace are pretty even though we’ve backed up in rates along with Treasuries,” Dimella said.
The increase in supply is “not derailing” the muni market in any way, he said, noting that it’s easier to deploy money into the marketplace with a “robust supply picture.”
Demand, though, continues to outstrip supply, in part because income is very attractive, Dimella said.
“If you have diversified investment-grade tax-exempt municipal mutual funds, you’re hovering around a 4% yield on a tax-exempt basis,” which is attractive in the fixed-income world, Dimella said.
“So even though we’re still grappling with where the economy is, where inflation is, what the Federal Reserve is going to do, the timing and the magnitude of the impact, when all is said and done, a lot of clients are taking a step back and saying, ‘Well what 4% tax-exempt deal, or 3.5% percent tax-exempt deal will be very attractive from a historical basis,'” he said.
As the year progresses, Dimella believes demand will continue to increase.
Olsan said the supply and demand components result in a “risk-off, methodical type of trade.”
Dealer inventories, she said, “reported most recently at $9.7 billion, represented a drop of nearly $4 billion par value, or a 28% decline from March’s close and 30% lower than the annual average.”
There may be a larger share of bids wanteds items trading into customer orders, given that bid wanteds continue to top $1 billion daily, Olsan said.
“Following recent yield moves, a generic muni index is now down 1% on the month with no real sub-sector showing much deviation from that result,” she said.
Despite increased rate volatility, Olsan said “new inquiry has the advantage of yields that have retraced more than 50% of their range in the last six months.”
Muni CUSIP requests rise
Municipal CUSIP request volume rose in March on a year-over-year basis, following an increase in February, according to CUSIP Global Services.
For municipal bonds specifically, there was an increase of 3.2% month-over-month and 5.8% year-over-year.
The aggregate total of identifier requests for new municipal securities — including municipal bonds, long-term and short-term notes, and commercial paper — rose1.6% versus February totals. On a year-over-year basis, overall municipal volumes are up 3.8%. Texas led state-level municipal request volume with a total of 92 new CUSIP requests in March, followed by New York (65) and Wisconsin (62).
AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.38% and 3.15% in two years. The five-year was at 2.78%, the 10-year at 2.74% and the 30-year at 3.90% at 3 p.m.
The ICE AAA yield curve was cut up to two basis points: 3.38% (+1) in 2025 and 3.17% (unch) in 2026. The five-year was at 2.80% (+1), the 10-year was at 2.79% (+1) and the 30-year was at 3.87% (unch) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was bumped up to two basis points: The one-year was at 3.41% (-2) in 2025 and 3.18% (-2) in 2026. The five-year was at 2.79% (-1), the 10-year was at 2.79% (unch) and the 30-year yield was at 3.89% (unch), according to a 3 p.m. read.
Bloomberg BVAL was unchanged: 3.41% in 2025 and 3.20% in 2026. The five-year at 2.73%, the 10-year at 2.73% and the 30-year at 3.91% at 3:30 p.m.
Treasuries were firmer across the curve.
The two-year UST was yielding 4.989% (+5), the three-year was at 4.825% (+6), the five-year at 4.678% (+6), the 10-year at 4.634% (+5), the 20-year at 4.857% (+4) and the 30-year at 4.731% (+3) at the close.
Primary to Wednesday
Morgan Stanley priced for the