Market Close: Munis End Mixed In Choppy Treasury Session

A choppy Treasury market and jobless claims that came in as expected left the tax-exempt market quiet.

Muni traders said investors were waiting for Friday’s employment numbers before putting money to work.

“There is always a lot of volatility ahead of the numbers but tomorrow carries more weight than a normal Friday update,” a Virginia trader said. “With all fed speak surrounding the numbers, it carries greater implications.”

Treasuries strengthened Thursday afternoon as some traders bet on a smaller-than-expected number Friday. “It seems like this number could disappoint so there is a little hedging with stronger Treasuries. And with muni supply low and so much volatility in Treasuries, they are more than happy to take cover and ride this thing out.”

This trader added that with the June 1 reinvestment money, the supply that did hit the market this week did fine. “A bid with a little size to it has held up well. Bids have come in pretty healthy.”

In the last of the primary market this week, Barclays priced $117 million of Massachusetts Housing Finance Agency bonds, rated double-A-minus by the rating agencies.

The bonds were priced at par with 0.90% and 0.95% coupons in a split 2016 maturity to 4.50% coupon in 2056. Bonds maturing in 2028 yielded 3.75% with a 4% coupon. The bonds are callable at par in 2023.

Bank of America Merrill Lynch priced $107.5 million of Los Angeles County Sanitation Districts Financing Authority capital projects revenue bonds, rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s. Yields ranged from 0.12% with a 1% coupon in 2013 to 2.11% with a 5% coupon in 2021.

In the secondary market, traders said the market was quiet. “There is not much activity,” a New York trader said. “It’s a bad market out there.”

Trades compiled by data provider Markit showed a mix of strengthening and weakening.

Yields on California 5s of 2037 jumped three basis points to 3.79% and Metro, Ore., 5s of 2020 increased one basis point to 1.64%.

Yields on New York’s Metropolitan Transportation Authority 4s of 2032 and Alabama Federal Aid Highway Finance Authority 5s of 2026 rose one basis point each to 4.07% and 3.14%, respectively.

Other trades were stronger. Yields on Connecticut 5s of 20201 fell five basis points to 2.03%.

Yields on California’s Golden State Tobacco Securitization Corp. 5.125s of 2047 and Chicago 5s of 2025 fell two basis points each to 6.23% and 3.57%, respectively.

Thursday, the Municipal Market Data curve flattened as yields on the short end rose and yields on the long end fell. The 10-year and 30-year yields slid one basis point each to 2.11% and 3.28%, respectively. The two-year was steady at 0.30% for the fourth session.

Yields on the Municipal Market Advisors 5% scale ended mixed. The 10-year yield slid one basis point to 2.17%. The 30-year was steady at 3.40% for the second session and the two-year finished unchanged at 0.36% for the seventh session.

Treasuries ended stronger after a choppy session. The 10-year and 30-year yields rose one basis point each in the morning and ended the day two basis points lower at 2.08% and 3.23%, respectively. The two-year was steady at 0.30%.

Over the course of the year, the slope of the muni yield curve has been steepening.

The one- to 30-year slope started the year at 264 basis points and steepened to 289 basis points on April 1. The slope flattened through the month of April to 259 basis points on May 1. Throughout May, the slope has steepened to 308 basis points on Thursday, just off the widest for the year at 309 basis points hit Wednesday.

The 10- to 30-year slope of the curve tells a similar story. The slope started the year at 108 basis points and widened out to 120 basis points on April 1. The slope flattened throughout April to 113 basis points on May 1. It has since steepened to 117 basis points on Thursday.

Even with a selloff throughout May, investors have moved down in credit quality in search for yield.

The triple-A to triple-B spread has tightened on the five-, 10-, and 30-year maturities. The five-year spread tightened to 124 basis points on Thursday from 143 basis points at the beginning of the year. Since May 1, the spread is flat from 124 basis points.

The 10-year triple-A to triple-B spread shows a similar story. The spread tightened to 133 basis points on Thursday from 151 basis points at the beginning of the year. From May 1, the spread has widened two basis points from 131 basis points.

The 30-year spread compressed to 128 basis points Thursday from 131 basis points Jan. 2. Since the recent selloff began in May, the spread widened from 124 basis points.

In economic news, following worse-than-expected ADP private payroll numbers Wednesday, the market was temporarily relieved with jobless claims released Thursday morning. The Labor Department said initial jobless claims fell 11,000 to 346,000 for the week ending June 1, coming in close to economists’ expectations of 345,000.

“The four-week average of jobless claims has crept higher in recent weeks but should fall next week unless initial claims rise sharply in the first week of June,” wrote economists at RDQ Economics. “For May as a whole, initial claims averaged 349,000, which is similar to the 352,000 monthly average for the first four months of 2013. Falling layoff announcements suggests jobless claims should continue to trend lower in the months ahead.”

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