U.S. municipal bond yields rose to a four-week high as investors refrained from buying in hopes of better returns.
Yields on top-rated tax-exempts maturing in 2020 jumped 2 basis points to 3.15 percent yesterday, the highest since May 13, after rising 1 basis point the day before, according to Municipal Market Advisors. They last rose on consecutive trading days May 7 and May 10, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
“The issue is absolute yields are so low, so you're seeing a lot of investor resistance,” said Alan Schankel, a managing director at Philadelphia-based Janney Montgomery Scott LLC. “There are a lot of bonds in dealers' inventory because it's hard to move them with such absolute lows.”
Municipalities offered $9.2 billion in debt this week, almost twice as much as the previous period, according to Bloomberg data.
Top-rated, 10-year municipal bonds yielded about 99 percent of equivalent-maturity Treasuries yesterday, close to the highest since May 2009, according to data compiled by Bloomberg. Municipals have averaged about 86 percent of Treasury yields this year.
“The nominal yields, even though attractive compared to Treasuries percentage-wise, there was a lot of reluctance to participate at this level,” said Tom Boylen, a managing director and municipal-bond trader in Chicago for
BMO Capital Markets. “We're going to have a somewhat illiquid environment in munis in the short run, until we get levels that are palatable.”
Yields on top-rated, 10-year general obligations sagged to a two-month low of 3.09 percent on May 25. Money flowed into long-term municipal bond mutual funds, the largest institutional holders of state and local obligations, for five consecutive weeks through June 2, according to data released June 9 by the Investment Company Institute, a Washington-based trade group.
Fund investors added a net $869 million in the period ended June 2, compared with $458 million the previous period, the institute's data show.
Connecticut, whose credit rating was downgraded one level to AA by Fitch Ratings last week, reduced a $600 million bond offer by about one-fourth this week.
The state with the highest tax-supported debt per capita lowered a refinancing issue to $258.2 million from $400 million, alongside $200 million in new borrowing. Connecticut's five-year securities were priced to yield 2.03 percent on June 9, or 29 basis points above top-rated general obligation debt, according to a daily survey by Concord, Massachusetts-based Municipal Market Advisors.
The last time Connecticut came to market, in April, five- year bonds yielded 1.93 percent, 9 basis points above the MMA index.
“The Fitch downgrade didn't help, but I think it is more a sloppy market,” Schankel said.
The state had $13.7 billion of bonds outstanding before the sale, according to New York-based Fitch. Yields on the state's 10-year general obligations have risen 2 basis points since the report, according to Bloomberg Fair Market Value data.
Sarah Sanders, assistant treasurer for debt management in Connecticut, declined to comment. Brian Marchiony, a spokesman for JPMorgan Chase & Co., which led the group marketing the deal, didn't return a call seeking comment.
