Munis improve inside 15 years as Treasuries rally; investment-grade munis lost 3.28% in 2013

By Sheri Kasprzak

New York, Jan. 6 - Municipals were better to kick off the week as Treasuries got a boost from lackluster nonmanufacturing data and as secondary action picked up, insiders reported.

Yields inside of 15 years were seen firmer by 2 basis points to 3 bps, following along with Treasuries. The short to intermediate range was more improved than longer bonds, said one trader, even as both short and long Treasuries saw gains.

"There's much more trading action going on 15 [years] and in, so that's where our strength is coming from for the most part," the trader said.

Meanwhile, EPFR Global released data Monday indicating municipal funds saw $44.59 billion of outflows during 2013, compared with $49.30 billion of inflows during 2012. During the fourth quarter of 2013, muni funds saw $32.75 billion of outflows.

According to Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC, there were $1.47 billion of outflows from municipal mutual funds during the week ended Jan. 1, the 32nd consecutive week of redemptions.

Muni index down 2.55%

For the year of 2013, municipals struggled, said J.R. Rieger, vice president of fixed-income indexes with S&P Dow Jones Indices.

The S&P Municipal Bond index lost 2.55% for the year, Rieger said. Investment-grade bonds, tracked in the S&P National AMT-Free Municipal Bond index, had a negative 3.28% return.

U of Texas leads new issues

Looking to the week's new-issue calendar, issuance is only expected to total about $2.5 billion, said Kozlik.

The new deals will be led by the University of Texas System's $240 million of series 2014A permanent university fund bonds, which will be sold through J.P. Morgan Securities LLC and BofA Merrill Lynch.

The bonds (Aaa/AAA/AAA) are due July 1, 2041, and proceeds from the offering will be used to refund existing taxable commercial paper notes.

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