The municipal market traded sideways over much of the past week in the face of a large influx of new supply and hefty muni bond fund flows.
Weaker Treasury yields on Thursday also helped to push muni yields upward, but only a few basis points higher on the week. Overall, munis outperformed Treasuries beyond 10 years on the curve.
But issuance out of California on Thursday provided the primary market’s largest test for the week.
Following a successful two-day retail period, institutions got their opportunity at what was originally about $2 billion of California general obligation refunding bonds.
Retail investors had purchased 47% of the offering, or $930.7 million, earlier in the week. Yields for the deal came in up to a few basis points higher from 10 years on out.
Secondary activity was weaker in the afternoon, though, creating a softer tone overall.
Muni bond indexes mostly rose on the week. The Bond Buyer’s 20-bond index of 20-year general obligation yields increased three basis points this week to 3.72%, its highest level since Jan. 5, when it was 3.83%.
The 11-bond index of higher-grade 20-year GO yields rose four basis points this week to 3.47%. That is its highest level since Jan. 5, when it was 3.57%.
The yield on the U.S. Treasury’s 10-year note increased four basis points this week to 2.03% — its highest level since Feb. 9, when it was 2.04%.
The yield on the Treasury’s 30-year bond gained two basis points this week to 3.15%, its highest level since Feb. 9, when it was 3.19%.
Primary supply is still paramount. Over the past couple of weeks, the 30-day visible supply has risen pretty consistently and the market is showing some signs of concern, according to John Dillon, chief municipal bond strategist at Morgan Stanley Smith Barney.
Even still, the deals are getting done, he added. But the secondary has been another matter.
“Looking to the secondary market, you see a much different story than you did in the primary, where deals were well-received,” Dillon said. “The pullback could be healthy for the market. The question is, is it enough?”
Muni yields since last Friday were flat at the two-year mark at 0.26%, underperforming Treasuries, which saw a one-basis-point decline.
The 10-year triple-A yield rose three basis points on the week to 1.90%, outperforming the 10-year Treasury, which rose six basis points over the week.
The 30-year triple-A ended the week up two basis points at 3.27%, also outperforming the long bond, which closed the week up six basis points.
The revenue bond index, which measures 30-year revenue bond yields, declined two basis points this week to 4.73%. It is at its lowest level since Feb. 2, when it was 4.70%.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, rose two basis points this week to 0.25%, which is its highest level since Feb. 8, when it was also 0.25%.
The weekly average yield to maturity of The Bond Buyer muni bond index declined one basis point this week to 4.57%, the lowest weekly average for the yield to maturity since the week ended Feb. 2, when it was also 4.57%.
