It’s been another strong week for municipal bonds as yields fell and investors gobbled up new issuance.
Demand in the primary propelled the market as major deals saw yields lowered around five basis points, on average. In some cases, issues were accelerated to market or upsized.
The week’s largest deal, $1.8 billion of Illinois general obligation bonds, set the tone when it priced Tuesday, with buyers attracted by relatively high yields from a credit buffeted by negative headlines. Nevertheless, underwriters were able to cut yields nine basis points at the long end, as the transaction was oversubscribed for maturities 10 years on out.
For the second consecutive week, muni bond indexes fell on all but the short end, demonstrating a market that is moderately strong moving outward from the intermediate portion of the yield curve.
The Bond Buyer’s 20-bond GO index of 20-year general obligation yields declined five basis points this week to 3.81%. It is at its lowest level since March 1, when it was 3.72%.
The 11-bond GO index of higher-grade 20-year GO yields dropped six basis points this week to 3.59%. That is its lowest level since March 1, when it was 3.47%.
The yield on the U.S. Treasury’s 10-year note declined three basis points this week to 1.93%. It is at its lowest level since Feb. 2, when it was 1.83%.
The yield on the Treasury’s 30-year bond dropped one basis point this week to 3.12%, which is the same level as two weeks ago.
Treasury yields saw small swells and dips since last Friday, but barely budged to end the week. In this, they showed little in the way of direction, said Chris Mier, a managing director of the analytical services division at Loop Capital Markets.
“The Treasury market is telling you that we’re just treading water,” he said. “There are no major surprises from any new events, either global or domestic situations, event risk, or whatever.”
Activity in the muni secondary started the week slowly, but picked up by Wednesday. Across the intermediate and long ends of the curve, muni yields fell up to three basis points on the week.
Muni yields from last Friday were flat at the two-year portion of the curve. They fell two basis points at the 10-year mark, and six basis points for the 30-year.
“That’s a market that is performing well, but then, yields aren’t moving too much,” Mier said. “The tone was good, deals were well received, investors were interested, demand was good and managed to handle the supply with no problem, and yields moved down a touch.”
Muni ratios to Treasuries got slightly richer since last Friday. The two-year ratio fell about four percentage points over the period to 114.81%. The 10-year ratio inched down a percentage point to 95.85% and the 30-year ticked down by the same amount to 102.57%.
The revenue bond index, which measures 30-year revenue bond yields, fell one basis point this week to 4.77%. It is at its lowest level since March 8, when it was 4.76%.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, increased one basis point this week to 0.27%. This is its highest level since Jan. 4, when it was 0.28%.
The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, was unchanged this week at 4.53%. It remains the lowest weekly average for the yield to maturity since the week ended March 8, 2007, when it was 4.52%.
