Muni Market Picks Up, Leaving Yields Mostly Lower

The municipal market perked up this week, leaving The Bond Buyer’s yield indexes mostly lower. This comes after a period of lackluster trading that had settled in after a mid-April rally.

Tax-exempt yields fell through April as demand for tax-exempts increased partly due to concerns that sales of taxable Build America Bonds would reduce tax-exempt supply, particularly at the long end. The Municipal Market Data triple-A yield curve scale hit a low on April 22, when it reached 4.35%. Since then it has retraced an upward path, reaching 4.48% yesterday.

“It’s been down and then up,” said Fred Yosca, managing director and head of trading and underwriting for BNY Mellon Capital Markets LLC. “Over the course of the week I’d say we’re three to four basis points better.”

Trading sessions Friday and Monday showed some weakness. However, new issues provided a focus Tuesday which included two BAB deals: $132 million of bonds sold for Wichita, Kan., Unified School District No. 259 and $200 million of electric revenue bonds for the Sacramento Municipal Utility District. As the market picked up strength Wednesday, secondary trading in SMUD bonds priced to yield 6.322% traded at a weighted average yield of 6.177%, an improvement over Tuesday’s trading of 6.296%, according to BondDesk’s MuniTicker.

“The BABs are having a very decided effect on the long end,” Yosca said. “The curve is very steep but out there the 35% subsidy really adds up.”

Firmness in the secondary continued into yesterday complemented by two more deals that included BABs: a $54 million deal for Southern Illinois University and a $95 million offering for Johnson County, Kan., Unified School District No. 233.

The Bond Buyer 20-bond index of 20-year general obligation bond yields and the 11-bond index of higher-grade 20-year GO yields both declined eight basis points this week to 4.62% and 4.37%, respectively.

The Bond Buyer’s revenue bond index, which measures 30-year revenue bond yields, was unchanged this week at 5.57%.

The 10-year Treasury note yield rose 17 basis points this week to 3.30%, while the 30-year Treasury bond yield rose 21 basis points to 4.26%.

Meanwhile, The Bond Buyer one-year note index fell 13 basis points this week to tie an all-time low of 0.59% that it first set two weeks ago. The weekly average yield to maturity on The Bond Buyer 40-bond municipal bond index finished at 5.37%, a drop of four basis points from last week’s 5.41%.

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