The tax-exempt market was quiet Friday as traders closed early ahead of the three-day weekend. Overall for the week, deals were very well received, many new issues were bumped up in size, and yields fell across the board.
“It’s a little slower because of the three-day holiday,” a New York trader said. “Overall for the week, we did see a pickup in business.”
The deals on last week’s calendar were “very well-received for the week,” he said.
“Friday is essentially a half day,” a Chicago trader said. “There is nothing going on besides what customers are compelling you to do. It’s weaker because there are less people here.”
Looking to this week, “it’s not a crazy amount on the calendar and it’s very manageable,” the New York trader said. “There might be a lot of children around with a break from school [this] week, so it could be a little on the quieter side.”
The Chicago trader said: “Supply is going to dictate what goes on in the market. Deals are priced to clear the market and you feel that effect. But the way to make money is to have something that’s unique and distinct.”
Overall, he said, institutional buyers were active, but retail, with buyers looking for blocks under $2 million, was slower. “That’s a little slower moving stream than the institutional block business,” he said.
“Absolute rates are still hard for the ultimate individual investor to accept relative to stocks and the perception of stocks,” he added. “I think greed has gotten out in front of fear in terms of the investor psyche, and when that happens, 2% in 10 years doesn’t get anyone excited. I think investors think they should be putting chips on faster horses than on good old muni bonds.”
Munis bonds have rallied so far this year, with the two-year yield falling 16 basis points from 0.42% on Jan. 3 and the 30-year yield dropping 34 basis points from 3.57%. The 10-year yield has fallen five basis points since the beginning of the year when it was 1.88%.
But while yields remain extremely low, the Chicago trader said he is still doing business with callable structures, and cheaper-priced smaller negotiated loans. “There is still some money being put to work, but if someone comes in and they have an order for 415 bonds out of 500, it’s an order and you’ll fill it,” he said. “But there is no trader behind that deal taking them all.”
Munis were slightly weaker Friday, according to the Municipal Market Data scale, but yields were still lower for the week. On Friday, the two-year yield was steady at 0.26%, its record low as recorded by MMD on Thursday. The previous record of 0.29% was set Feb. 7. The 10-year yield and the 30-year yield rose to 1.83% and 3.23%, respectively.
Treasuries were weaker. The benchmark 10-year and the 30-year yields rose two basis points each to 2.01% and 3.16%, respectively. The two-year was steady at 0.30%.
In the secondary, trades reported by the Municipal Securities Rulemaking Board showed firming over the past week.
Bonds from an interdealer trade of Los Angeles Unified School District 5s of 2030 yielded 2.66%, 12 basis points lower than where they traded the week before.
A dealer sold to a customer Dormitory Authority of the State of New York 4.375s of 2034 at 3.72%, 12 basis points lower than where they traded earlier in the week.
A dealer bought from a customer Chicago Board of Education 5s of 2041 at 4.01%, 11 basis points lower than where they traded earlier in the week.
Another dealer bought from a customer New York City Municipal Water Finance Authority 5s of 2044 at 3.80%, six basis points lower than where they traded a few days prior.
Throughout last week, muni-to-Treasury ratios fell as munis outperformed and became more expensive. The five-year ratio fell to 75.6% on Thursday from 82.5% the week before. The 10-year muni-to-Treasury ratio dropped to 91.5% from 93.4%. The 30-year ratio fell to 102.5% from 104.8% the previous week.
