The tax-exempt market ended April on a very slow note as a lack of primary issuance and a quiet secondary failed to push municipal bonds in any direction on the last trading session of the month.
“Munis are very slow,” a New York trader said.
A Chicago trader agreed. “It’s dead here,” he said.
Munis finished steady Monday, according to the Municipal Market Data scale, after finishing flat on Friday.
The two-year yield closed flat at 0.31% for the ninth consecutive trading session while the 30-year ended flat at 3.25% for the sixth consecutive session. The 10-year yield finished at 1.87% for the fourth time.
Treasuries were mostly steady, with the two-year yield and the 30-year yield closing flat at 0.27% and 3.12%. The benchmark 10-year yield fell one basis point to 1.93%.
In the primary market this week, $6.09 billion of new debt is expected, down slightly from last week’s revised $6.1 billion. On the negotiated calendar, $5.37 billion is expected, up from last week’s revised $4.19 billion. In competitive offerings, $719.3 million is expected, down from last week’s revised $1.91 billion.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming.
A dealer sold to a customer Central Plains, Neb., Energy Project 5.25s of 2037 at 4.76%, 12 basis points lower than where they traded Friday. A dealer bought from a customer Allen County, Ohio, Hospital Facilities 5s of 2042 at 4.19%, three basis points lower than where they traded Friday.
Bonds from an interdealer trade of Puerto Rico 5.5s of 2039 yielded 5.06%, two basis points lower than where they traded Friday. Bonds from another interdealer trade of California 5.25s of 2040 yielded 3.93%, one basis point lower than where they traded Thursday.
Elsewhere in the secondary market, trades showed both firming and weakening.
In a sample of CUSIP numbers compiled by data provider Markit, half of muni yields fell while the other half rose.
Yields on Pennsylvania Turnpike Commission 3s of 2015 fell three basis points to 1.31%, while Wisconsin 5s of 2020 fell one basis point to 1.89%.
But yields on Tennessee 5s of 2021 rose two basis points to 1.81% and California State University 5s of 2024 increased one basis point to 2.68%.
On the last trading day of April, muni-to-Treasury ratios rose as municipals underperformed and became relatively cheaper throughout the month.
The five-year muni yield to Treasury yield rose to 100% from 96.1% on the first day of trading in April. The 30-year ratio jumped to 104.2% from 101.5% at the beginning of April.
The 10-year ratio ended the month steady, rising slightly to 96.9% from 96.8% in early April.
Ratios paint a different picture when viewed year to date. For the first four months of the year, ratios on the short and intermediate end rose as munis became comparatively cheaper. Muni-to-Treasury ratios on the long end fell as munis became much more expensive than their taxable counterparts.
The five-year ratio rose to 100% from 98.9% on Jan. 3. The 10-year ratio rose slightly to 96.9% from 96.4% at the beginning of the year.
The 30-year ratio plummeted to 104.2% from 119.4% on the first trading session of 2012.
The slope of the yield curve fell during April to 305 basis points from 321 as investors moved further out on the curve in search for yield. The slope of the curve also flattened throughout the first four months of the year. The slope started at 332 basis points at the beginning of the year.
The 10- to 30-year slope of the curve increased to 138 basis points from 126 basis points as buyers showed more interest in the belly of the curve than on the long end. But throughout the year, the 10- to 30-year slope of the curve flattened from 169 basis points in January.
During April, triple-A to single-A credit spreads showed investors prefer higher-yielding credits on the short and long end, but high-grade bonds in the belly of the curve.
The two-year triple-A to single-A spread remained at 39 basis points in April, while the five-year spread fell to 62 basis points from 67 at the beginning of the month.
Further out on the curve, investors were also willing to move down the credit scale. The 30-year triple-A to single-A spread fell to 76 basis points from 78 at the beginning of the month.
But in the belly of the curve, investors moved out of the higher-yielding bonds into high-grade debt throughout the month. The 10-year triple-A to single-A spread jumped to 81 basis points from 78 at the start of April.
To be sure, spreads compressed across the curve throughout the year so far. Year to date, the two-year spread fell to 39 basis points from 56 basis points on the first trading session in January. The five-year fell to 62 basis points from 82 basis points at the beginning of the year.
The trend continued further out on the curve. The 10-year spread fell to 81 basis points from 96 basis points in January. Spreads on the 30-year also fell to 76 basis points from 89 basis points at the start of 2012.
