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Market Close: Munis End Quiet, Steady

The tax-exempt market ended the Thanksgiving holiday-shortened week on a quiet note as limited new issuance and a lack of momentum in the market allowed for quiet trading sessions.

In the morning session, a New York trader said market participants were taking advantage of their last opportunity to get business done before the holiday.

“It’s actually a little busy for the day before a holiday,” a New York trader said.

But by afternoon, activity had slowed as traders turned their heads to end-of-the-year issuance.

“The market is pretty dead now,” a Chicago trader said. “But the trades that were going on were almost firmer. There was not a huge bump but a couple trades are getting done semi firmer. It’s a little better than expected.”

He added increased issuance over the coming weeks should help offset some demand. “Around this time of the year you see deals pop out of the woodwork. A couple guys I talked to said the market could grind higher and tighten up. I have a hard time believing that with the new issue calendar next week and ratios around the lowest of the year. But, there is a lot of demand.”

On Wednesday, the 10-year Municipal Market Data yield rose two basis points to 1.53%, hovering above the record low of 1.50% set Nov. 16.

The 30-year MMD yield remained unchanged for the fourth session at its record low of 2.54% set Nov. 16. The two-year finished steady at 0.30% for the 39th consecutive trading session.

Yields have fallen dramatically since the beginning of the month. Over the course of November, the 10-year MMD yield has fallen 19 basis points from where it started at 1.72% while the 30-year yield has fallen 28 basis points from where it started the month at 2.82%.

Treasuries weakened for the third session Wednesday. The benchmark 10-year yield jumped three basis points to 1.69% while the 30-year yield increased two basis points to 2.83%. The two-year yield rose one basis point to 0.28%.

Over the week, the 10-year Treasury yield has risen 11 basis points while the 30-year yield has jumped 10 basis points.

Over the course of November, muni-to-Treasury ratios have fallen on the intermediate and long end of the curve as munis outperformed their taxable counterparts and became relatively more expensive.

The 10-year muni yield to Treasury yield ratio dropped to 90.5% on Wednesday from 100% at the beginning of November. Similarly, the 30-year ratio fell to 89.8% from 97.2% at the beginning of the month. That trend has continued throughout the year when the 10-year ratio fell from 96.4% on Jan. 3 while the 30-year ratio plummeted from 119.4% at the beginning of the year.

Ratios on the short-end have risen as munis underperformed their taxable counterparts and became relatively cheaper. The five-year ratio increased to 94.1% on Wednesday from 91.8% at the beginning of the month. It is still below where it started the year at 98.9%.

After Thanksgiving, the municipal market can expect $7.92 billion to be issued, up from the previous week’s revised $2.29 billion. On the negotiated calendar, $5.82 billion is expected to be priced, up from the previous week’s revised $2.01 billion. In competitive deals, $2.10 billion should be auctioned, up from the previous week’s revised $276.4 million.

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