Municipals were mostly steady, ignoring other markets Thursday as the week’s last sizable new issues closed books while U.S. Treasuries rose and equities were up on better economic data.

Secondary trading petered off into the afternoon, holding triple-A benchmarks steady, as most participants await Friday’s nonfarm payrolls.

For the 22nd consecutive week, Refinitiv Lipper reported inflows into municipal bond mutual funds as investors poured $1.2 billion of cash into the funds, with high-yield seeing $492 million of that amount. It marks 9 weeks of more than $1 billion since May 19.

In the week ended Aug. 4, weekly reporting tax-exempt mutual funds saw $1.228 billion of inflows, according to Refinitiv Lipper. It followed an inflow of $1.394 billion in the previous week.

Exchange-traded muni funds reported inflows of $121.931 million, after inflows of $483.129 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.106 billion after inflows of $910.635 million in the prior week.

The four-week moving average remained positive at $1.647 billion, after being in the green at $1.913 billion in the previous week.

Long-term muni bond funds had inflows of $647.952 million in the latest week after inflows of $573.189 million in the previous week. Intermediate-term funds had inflows of $119.809 million after inflows of $50.669 million in the prior week.

National funds had inflows of $1.152 billion after inflows of $1.276 billion while high-yield muni funds reported inflows of $492.181 million in the latest week, after inflows of $578.107 million the previous week.

The short end of the market remains at ultra-low yields. Bloomberg BVAL now has the one- and two-year at 0.03%. Refinitiv MMD has the one and two-year at 0.05%. ICE Data Services sees the one-year at 0.04% and two-year at 0.05%.

Trades showed some stronger trades out of the gates. North Carolina 5s of 2022 at 0.036% versus 0.045% Wednesday. Virginia 5s of 2022 at 0.06%-0.05% (0.05% Monday). Utah 5s of 2022 at 0.05%. Los Angeles CCD 5s of 2023 at 0.06%-0.05%. Washington 5s of 2023 at 0.09%.

Maryland 5s of 2024 at 0.09%. Maryland DOT 5s of 2024 at 0.13%. Dallas, Texas ISD 4s of 2024 at 0.10%.

“Short maturities have caught a bid but there is almost no room left to move further,” said Kim Olsan, senior vice president at FHN Financial.

She noted the 2- to 5-year range shows “eye-popping levels — local AA GOs due in 2023 are trading below 0.05%, or less than 25% relative value to the 2-year UST (the annual average is 88%),” Olsan said.

Similar flows are occurring in new-issue where commitments past the money market range are holding rates to such extreme lows, she said.

“The result may be a function of limited money-market product as note sales this year so far have totaled just $16.8 billion vs. $26.5 billion in the same period last year (issuers have more reserve balances to draw on),” Olsan said. “Tax-exempt money funds have reached a 10-year low of just $91.6 billion. These flows have caused the long end of the curve to cede some volume to maturities inside 7 years, where nearly one-third of trades have occurred in the last week.”

“Based on the real rate range, there is still value in an extension trade, especially where the first 1% yield hits and just past 20 years where about 90% of the full yield capture can be found,” she said.

Olsan pointed to the summer of 2014, when short rates traded below 0.20% but the curve slope was 300 basis points — “much more rewarding in absolute yield terms.”

In the primary Thursday, Clifton, New Jersey, Board of Education sold $168.282 million of general obligation unlimited tax school bonds to BofA Securities. Bonds callable in 8/15/2028: 2s of 2022 at 0.18%, 2s of 2026 at 0.80%, 2s of 2031 at 1.52%, 2s of 2036 at 2.03%, 2s of 2041 at 2.19% and 2.25s of 2046 at 2.34%.

BofA Securities priced for the Arizona Industrial Development Authority (A1/A//A+) $150.97 million of Phoenix Children’s Hospital forward delivery bonds: 5s of 2023 at 0.19%, 5s of 2026 at 0.55%, 5s of 2031 at 1.18%, 5s of 2036 at 1.49%, 3s of 2041 at 2.15%, callable in 2/1/2032, dated date 11/1/2021.

More NYC paper on the way — NYC to sell $1.3B GOs
New York City said it will issue $1.3 billion of general obligation bonds the week of Aug. 16.

The deal is made up of about $1.04 billion of tax-exempt fixed-rate bonds and $250 million of taxable fixed-rate bonds.

The tax-exempts are expected to be priced on Wednesday, Aug. 18, after a two-day retail order period. The bonds will be priced by book-running lead manager Citigroup, with BofA Securities, JPMorgan Securities, Jefferies, Loop Capital Markets, Ramirez & Co., RBC Capital Markets, Siebert Williams Shank and Wells Fargo as co-senior managers.

The city will competitively sell $250 million of taxables on Aug. 23.

Proceeds of the bond sale will be used to fund capital projects and convert certain issues of floating-rate debt to fixed-rate debt.

Secondary trading and scales
Trading along the curve showed a steady tone. Washington 5s of 2023 at 0.085% versus 0.10% original. Frisco, Texas ISD 5s of 2024 at 0.17%. New York Dorm PITs 5s of 2026 at 0.33%-0.32%.

California 5s of 2029 at 0.72%. Maryland 5s of 2032 at 0.89%.

Fairfax County, Virginia sewer 4s of 2039 at 1.28%-1.27%. Washington 5s of 2041 at 1.32%-1.31% (1.32% original). Washington 5s of 2045 at 1.49%-1.46% (1.44% original). Fairfax sewer 5s of 2046 at 1.39%.

Georgia road 3s of 2051 at 1.95%-1.92%.

Los Angeles DWP 5s of 2051 at 1.45%.

Refinitiv MMD had yields steady at 0.05% in 2022 and down one to 0.05% in 2023. The yield on the 10-year sat at 0.82% while the yield on the 30-year stayed at 1.39%.

ICE municipal yield curve saw bonds steady at 0.04% in 2022 and to 0.05% in 2023. The 10-year maturity was steady at 0.85% and the 30-year yield at 1.38%.

The IHS Markit municipal analytics curve saw the one-year steady at 0.05% and the two-year at 0.06%, with the 10-year fall two basis points to 0.81%, and the 30-year yield steady at 1.37%.

Bloomberg BVAL saw levels at 0.03% in 2022 and 0.03% in 2023, both down one, while the 10-year sat at 0.82% and the 30-year at 1.37% (+1).

Treasuries were higher while equities gained. The 10-year Treasury was yielding 1.214% and the 30-year Treasury was yielding 1.859% in late trading. The Dow Jones Industrial Average rose 210 points or 0.61%, the S&P 500 gained 0.43% while the Nasdaq rose 0.57%.

Economy
Jobless claims fell for the second week in a row but are still hovering around the same mark they have been at for months, as the Delta variant is not a contributing factor to a “measurable reduction” in activity, according to one analyst.

“While the Delta variant has sparked a rise in COVID cases, there’s scant indication this is translating to a measurable reduction in economic activity in the U.S. so far, suggesting little meaningful impact on employment,” according to Mark Hamrick, senior economic analyst at Bankrate.

Initial jobless claims fell to 385,000 in the week ended July 31, on a seasonally adjusted basis, from a downwardly revised 399,000 the week before, first reported as 400,000 claims.

Economists polled by IFR Markets estimated 380,000 claims in the week.

Continuing claims decreased to 2.930 million in the week ended July 24, from an upwardly revised 3.296 million in the prior week, initially reported as 3.269 million.

This marks the lowest level of continuing claims since it was at 1.770 million the week of March 14, 2020, just before the pandemic began to wreak havoc.

IFR anticipated 3.283 million claims in the week.

“New jobless claims dropped a bit back below the seasonally adjusted 400,000 level, in line with expectations, but remain in territory where they’ve been in recent months,” Hamrick said. “They slipped below the benchmark 400,000 level for the first time since the pandemic began around Memorial Day and have essentially hovered there since.”

Also released Thursday, the international trade deficit widened to $75.7 billion in June from $71.0 billion in May. Economists expected a $73.9 billion shortfall.

“The U.S. trade deficit rose to a record in June, while exports rose by $1.2 billion during the month and imports jumped $6.0 billion,” said Jay Bryson, chief economist and Shannon Seery, economist at Wells Fargo Securities. “The June data largely confirm the preliminary real GDP data for Q2 that were released last week.”

They added that looking ahead, the “strong” outturn for imports in June sets trade up to be “another drag on growth in the third quarter.”

“But with little data yet available for the quarter, it remains to be seen how trade evolves from here due to the rise in the Delta variant in the United States and the severe transportation bottlenecks the sector continues to face,” they said. “The trade deficit likely will remain elevated in coming months due to continued strength in U.S. domestic demand.”

Chip Barnett contributed to this report.