U.S. munis rise again after sell-off

By Michael Connor

MIAMI (BestGrowthStock) – Buyers chasing recently fattened tax-free yields jumped into America’s $2.8 trillion municipal bond market for a second day on Friday and drove prices up sharply after a severe sell-off.

The drop in munis, which lifted some tax-free yields by 0.5 percentage point or more in less that two weeks, was mostly blamed on a glut of bond sales from America’s hard-pressed local governments that looked likely to continue for another month.

But on Friday, prices of tax-free bonds climbed enough in exceptionally active trading to cut yields by as many as 10 basis points. Yields had also dropped or stabilized on Thursday after the price slide that began in earnest November 5.

“We have seen a sea change that began yesterday,” said strategist and portfolio manager Jim Colby of Van Eck Global in New York. “The selling and the force of the knockdown were way overdone.”

Top-quality intermediate and long muni bonds tracked by Municipal Market Data showed the best gains. A few short-term maturities ended flat after suffering relatively lightly in the sell-off.

Yields on AAA-rated 30-year bonds closed at 4.40 percent, off 10 basis points from Thursday, according to MMD. The 10-year tax-free’s yield gave up 10 basis points to finish at 2.91 percent.

A big offering from California of Build America Bonds, an innovative from of subsidized debt whose fatter taxable yields have drawn much overseas and nontraditional buying interest, debuted on Friday.

California’s treasurer reported sales of $3.275 billion of taxable general obligation bonds, with Build America Bonds due in 2040 yielding 7.519 percent. There were $3 billion of BABS in the deal, including $2.11 billion in the 2040 maturity, which were priced with a spread of 325 basis points over comparable U.S. Treasuries.

By comparison, Time Warner Cable, which carries slightly weaker ratings than California, sold $1.2 billion of 30-year debt last week for a yield of 6.020 percent.

In the broader secondary market, trading volumes on Friday, a usually sluggish trading day, ran at double the daily average of the last month, according to Municipal Securities Rulemaking Board data.

Looking ahead, primary market offerings were expected to total $15.4 billion over the next 30 days, or about 25 percent above the average forecast during the last two months, according to MMD data.

But next week, when trading hours will be curtailed by the Thanksgiving Day holiday, municipal bond sales were forecast by Thomson Reuters to total $5.1 billion in 71 sales. That’s a big reduction from the $24.4 billion initially forecast for this week, when total issuance amounted to about $20.23 billion after underwriters facing costlier borrowing pulled deals.

One indicator of the breadth of the exodus from munis came from the Lipper data group, which reported investors withdrew almost $3 billion from municipal bond mutual funds in the week which ended Wednesday.

The shift was the largest one-week outflow since Lipper, a unit of Thomson Reuters, began tracking the funds in 1992, Jeff Tjornehoj, head of Lipper Americas Research, said. The previous weekly record was $2.3 billion of net outflow the week ended October 15, 2008, at the height of the credit crisis.

(Additional reporting by Karen Pierog in Chicago, Aaron Pressman in Boston, and Chris Sanders and Caryn Trokie in New York; Editing by James Dalgleish)

U.S. munis rise again after sell-off