The tax-exempt market weakened Thursday, extending its losing streak into five consecutive trading sessions, as buyers waited for muni yields to rise even further before putting money back to work.
In the competitive market, Ramapo, N.Y., had been expected to auction $39.2 million of short-term notes after cancelling its long-term bond issue following an FBI raid on its town hall. The short-term note sale was postponed to next week, according to Reuters.
Relative to Treasuries, munis still look expensive and buyers were in no rush to pay up.
“It is not good,” a North Carolina trader said. “It’s definitely weaker and a very thin market. There is not a lot of depth to any bidding.”
This trader said munis look expensive compared with Treasuries and need a correction to draw in buyers.
The five-year muni-to-Treasury ratio dropped to 94.4% on Thursday from 112.3% on May 1. The ratio is well below its 90-day average of 103.6%.
The 10-year ratio slid to 94.1% from 101.2%. It finished Thursday below the 90-day average of 98.7%. The 30-year ratio dropped to 96.6% from 98.2%. It closed below its 90-day average of 97.8%.
Other traders said buyers waited on the sidelines ahead of the three-day weekend. “It’s slow and there are not many buyers at the moment,” a New York trader said. “It should pick up with June 1 cash flow but it’s about steady and quiet now. People might be in holiday mode already.”
Traders said the primary market took most of the attention this week, leaving the secondary with little depth. “From the buy side, they are predominantly focused on the primary. So everything they are looking for is getting met.”
Thursday, Goldman, Sachs & Co. priced $157.8 million of Louisiana general obligation refunding bonds, rated double-A by the rating agencies.
Yields ranged from 0.25% with a 5% coupon in 2014 to 2.56% with a 5% coupon in 2026. Bonds maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2023.
In the secondary, trades compiled by data provider Markit showed weakening. Yields on California Health Facilities Financing Authority 5s of 2035 jumped six basis points to 3.40% and Tennessee 5s of 2019 increased five basis points to 1.21%.
Yields on Puerto Rico Sales Tax Financing Corp. 5.25s of 2041 and Miami-Dade County, Fla., Expressway Authority Toll System 5s of 2033 rose four basis points each to 4.43% and 3.55%, respectively.
Yields on New York City Municipal Water Finance Authority 3.75s of 2047 and Dormitory Authority of the State of New York 5.5s of 2023 rose two basis points each to 3.82% and 2.42%, respectively.
Yields on the Municipal Market Data scale ended as much as five basis points higher Thursday. The 10-year and 30-year yields increased four basis points each to 1.90% and 3.08%, respectively. The two-year yield increased one basis point to 0.29%.
Since munis started posting losses last Friday, the 10-year yield increased nine basis points from 1.81% and the 30-year yield jumped 13 basis points from 2.95%. The two-year yield rose one basis point from 0.28%.
Thursday, the Municipal Market Advisors 5% scale showed yields rising as much as five basis points. The 10-year and 30-year yields increased four basis points each to 1.97% and 3.19%. The two-year yield rose two basis points to 0.35%.
Since munis started weakening last Friday, the 10-year yield increased 11 basis points from 1.86% and the 30-year yield jumped 12 basis points from 3.07%. The two-year yield rose two basis points to 0.35%.
After a choppy session Wednesday, Treasuries posted gains Thursday. The two-year yield and benchmark 10-year yield slid one basis point each to 0.25% and 2.02%, respectively. The 30-year yield also fell one basis point to 3.20%.
Over the past week, trading volume has picked up from previous weeks in retail trades of fewer than 100 bonds – or $100,000 par value, according to BondDesk Group. For the week ending May 22, there were 58,318 buy trades, up from the previous week’s 56,735 trades. It was the highest since the week ending May 1 when there were 59,590 buy trades.
Sell trades were the highest in the previous five weeks. There were 35,905 sell trades, up from last week’s 35,640 sell trades.
In dollar volume, the par value of buy trades increased to $1.612 billion, from last week’s $1.567 billion. The par value of buy trades was the highest since the week ending May 1.
Par value of sell trades fell to $994 million from the previous week’s $1 billion.
Dollar amount per every sell trade fell for the week ending May 22, reversing a five week trend of increasing par value of trade amount. In the first time in five weeks, par value of sell trades fell while the number of transactions increased.
After Federal Reserve chairman Ben Bernanke hinted the next few months of economic data would be important in deciding whether or not to taper the $85 billion a month bond purchases, fixed income traders focused on Thursday morning’s jobless claims.
Initial jobless claims fell 23,000 to 340,000 in the week ended May 18. Claims fell more than the 346,000 expected by economists. Continuing claims fell 112,000 to 2.912 million for the week ending May 18, compared with the 3.000 million claims expected by economists.
“The decline in jobless claims in the latest week and the steadiness of the four-week average of claims in recent weeks should reassure that job growth has not slowed in May,” wrote economists at RDQ Economics. “Fed Chairman Bernanke’s testimony Wednesday reaffirmed the importance of sustained improvement in the labor market as a precondition to tapering asset purchases and this report is consistent with such an improvement. We believe that by September, the FOMC will have seen enough evidence of firming labor market conditions to modestly pull back on bond purchases.”
