The tax-exempt market started the week off on a slow note as traders waited to take direction from what is expected to be one of the larger weeks of new issuance in the muni market.
Activity was muted and traders said the market was struggling to get going after the weekend.
“The market is quiet,” a New York trader said. “It’s maybe slightly weaker with Treasuries, but quiet. Everyone is talking about the calendar this week, which won’t really pick up until Tuesday. So it’s pretty quiet.”
Others agreed. “Munis are quiet,” a second New York trader said.
Indeed, munis ended steady to slightly weaker Monday, according to the Municipal Market Data scale. Yields inside six years were steady while yields outside seven years rose one basis point.
The 10-year yield rose one basis point to 1.76%, nine basis points above its record low of 1.67% set Jan 18. The 30-year yield also increased one basis point to 3.05%, one basis point above the record low of 3.04% set Friday. The two-year yield was steady at 0.32% for the second session.
Treasuries were weaker Monday after a hefty rally Friday. The benchmark 10-year yield jumped seven basis points to 1.53% while the 30-year yield increased five basis points to 2.57%. The two-year rose one basis point to 0.27%.
In the negotiated market, Goldman, Sachs & Co. held its first day of retail pricing for $800 million of New York City Transitional Finance Authority future tax-secured and tax-exempt subordinate bonds in two series. The bonds are rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch Ratings.
Yields ranged from 0.55% with 2%, 4%, and 5% coupons in a split 2015 maturity to 3.36% with a 4% coupon in 2039. Credits maturing in 2014 were offered via sealed bid. Bonds maturing from 2024 to 2026, 2028 to 2030, and 2034 to 2038 were not offered for retail. The bonds are callable at par in 2022.
On the competitive calendar, JPMorgan won the bid for $136.9 million of Ventura County, Calif., short-term notes, rated MIG-1 by Moody’s and SP-1-plus by Standard & Poor’s. The notes yield 2.5% priced at par and were not formally re-offered.
In the secondary market Monday, trades compiled by data provider Markit showed a mix of stronger and weaker bonds.
Yields on San Diego County Regional Transportation Commission 5s of 2020 and Del Mar, Texas, College District 5.25s of 2019 fell one basis point to 1.64% and 0.30%, respectively.
But yields on New Jersey Economic Development Authority 7.425s of 2029 and Georgia 5s of 2016 each rose one basis point to 5.17% and 0.65%. Yields on Northern Tobacco Securitization Corp. 5s of 2046 jumped eight basis points to 6.88%.
Over the past week, trades reported by the Municipal Securities Rulemaking Board showed firming.
Bonds from an interdealer trade of Dormitory Authority of the State of New York 5s of 2022 yielded 1.85%, seven basis points lower than where they traded Thursday. Bonds from another interdealer trade of Florida’s Citizens Property Insurance Corp. 5s of 2013 yielded 0.50%, three basis points lower than where they traded Friday.
A dealer bought from a customer California 5.95s of 2018 at 2.61%, three basis points lower than where they traded Thursday. A dealer sold to a customer Washington 5s of 2023 at 2.30%, two basis points lower than where they traded Wednesday.
On Monday, muni-to-Treasury ratios fell on the long end as munis outperformed their Treasury counterparts and became relatively more expensive. The 10-year ratio fell to 115% on Monday from 119.9% on Friday. The 30-year ratio also fell to 118.7% from 120.2% on Friday.
The five-year muni yield to Treasury yield ratio was the anomaly, as it rose slightly to 118.5% on Monday from 117.7% last Friday.
While ratios on the long end fell slightly so far in June, ratios across the curve jumped in May as munis underperformed Treasuries and became relatively cheaper. The five-year muni-to-Treasury ratio jumped to 113.6% at the end of May from 97.6% at the start of the month. The 10-year ratio jumped to 114.7% at the end of the month from 95.9% on May 1. The 30-year ratio also increased to 116.2% from 102.9%.
Ratios are all well above the three-month averages of 97.6% for the five-year, 98.9% for the 10-year and 104.8% for the 30-year. Ratios are also elevated from the one-year averages of 98.3% for the five-year, 99.9% for the 10-year and 109.8% for the 30-year.
Credit spreads have continued to compress throughout the month and so far this year as investors move further down the credit scale in search for yield. The two-year triple-A to single-A spread fell to 39 basis points from 56 basis points at the beginning of the year. Similarly, the five-year spread fell to 62 basis points from 82 basis points at the start of January.
Spreads on the long end of the curve have compressed since the beginning of the year, but did widen out for a few days in May before coming back in last week.
The 10-year triple-A to single-A spread fell to 78 basis points from 96 basis points at the beginning of the year. The spread briefly widened out to 79 basis points mid-May. The 30-year spread fell to 75 basis points from 89 basis points at the start of the year. It has widened out from 71 basis points mid-May.
The slope of the yield curve has continued to fall so far this year as investors buy longer-duration bonds in search for yield. The one- to 30-year slope fell to 307 basis points from 332 basis points at the beginning of the year. The 10- to 30-year slope of the curve also dropped to 131 basis points from 169 basis points at the start of January.
