The municipal market ended the week with two days of hibernation.
Though investors reached month- and quarter-ends, they weren’t participating, for the most part. In addition, the Rosh Hashanah celebration, continuing into a second day, cut muni desks’ staffs enough to limit activity.
“The market was too thinly traded to [provide direction],” a trader in Texas said. “It barely had a pulse, much less a tone. People were looking at the calendar next week and wondering what kind of reception it will get. There are a lot of big deals. It’s going to be a good test for the market.”
Tax-exempt yields were mixed across the curve Friday, according to the Municipal Market Data scale. They were steady through six years, and between 14 and 22 years. Between seven and 13 years, they increased one or two basis points. And those yields beyond 22 years inched down one basis point. The 10-year muni yield ticked up one basis point Friday to 2.22%.
On the week, it rose 25 basis points. The 30-year yield slipped one basis point on the day to 3.55%, but rose 11 basis points for the week. The two-year yield held for a third session at 0.34%. For the week, it increased two basis points.
Treasury yields were firmer on the day, a departure from most of the past five sessions. The benchmark 10-year Treasury yield dropped eight basis points Friday to 1.91%, but rose eight basis points for the week. The 30-year yield plunged 15 basis points to 2.90%. For the week, it ended up one basis point. The two-year yield slipped one basis point to 0.26%, but was four basis points higher for the week.
Looking at muni-Treasury ratios in the 10- and 30-year spaces, relative value is headed back to the yearly high levels seen on Sept. 22, MMD analyst Dominic Vonella wrote in a research post. The 10- and 30-year ratios on that day were 114% and 122%, respectively.
“What has crossovers drooling at this point is that over the past year, 10-year and 30-year muni-Treasury ratios have averaged 94% and 104%, respectively, or roughly 38 basis points and 46 basis points of potential relative performance,” Vonella wrote. “The question is whether or not the fast-money bid will move further in the curve to help digest upcoming supply.”
It also appears as though more new issuance is on the way. The market expects a boost this week to the tune of an anticipated $8.26 billion. Last week, the market saw a revised $7.69 billion in new supply.
“The supply calendar seemed to be fairly well-absorbed,” William Blair & Co.’s David Abel said about last week’s new volume.
In other news, the week ending Sept. 28 saw almost $600 million in inflows from muni bond funds that report their flows weekly, according to Lipper FMI. That follows net inflows of $296 million the previous week.
