The municipal bond market outperformed Treasuries for most of the past week as yields on tax-exempts didn't rise as much as their taxable counterparts.
Earlier in the week, mostly positive economic data, including better-than-expected gross domestic product growth and jobless claim figures, pushed Treasury yields higher. Muni yields followed, though at a lag. Treasury yields receded on underwhelming jobs numbers released Friday morning.
Through Thursday, the five-year muni-to-Treasury ratio slipped to 87.9% from 93.4% the week before. The 10-year ratio fell to 99.6% from 105.5%. The 30-year ratio fell to 111.9% from 116.6%.
"Tax free benchmark yields moved higher on Thursday, but munis ended the session with a strong outperform, as Treasuries sagged," wrote Alan Schankel, managing director at Janney Capital Markets. "The 10-year triple-A muni yield was up four basis points at 2.71%, but the like-maturity Treasury bond yield also finished at 2.71%, reflecting a 12 basis point increase, leaving the muni to Treasury ratio at 100%, the lowest level in several weeks."
Limited supply in the primary market drew in more demand than there was supply.
JPMorgan priced $376.9 million of New York City general obligation bonds. The deal size was increased from the preliminary $277.2 million due to demand.
Barclays priced $207.7 million of Georgia Private Colleges and Universities Authority revenue bonds for Emory University, and was able to lower yields as much as nine basis points in repricing.
Barclays priced $124.4 million of Orange County Transportation Authority senior lien toll road revenue refunding bonds, and lowered yields as much as 12 basis points in repricing.
In the secondary market this week, trading was subdued Monday and Tuesday and jumped Wednesday, according to Interactive Data.
Monday, there were 43,329 trades of $5.062 billion, compared with 43,644 trades of $5.238 billion the previous Monday.
Tuesday, there were 47,271 trades of $8.115 billion, down from 51,244 the previous Tuesday but higher than the $7.648 billion in par value traded.
Wednesday, the number of trades fell to 48,891 from 49,465 the previous Wednesday. But par value traded jumped to $10.127 billion from $8.826 billion.
Par value traded Wednesday was the fourth highest in July, figures from Interactive Data show, coming only after $11.448 billion traded July 11, $10.431 billion on July 25, and $10.427 billion on July 17. Tuesday' par value traded of $8.115 billion was the ninth highest volume of the month.
As the week progressed, institutional participation increased. In par value traded, institutional activity grew from 54% on Monday, to 64% on Tuesday, and to 70% on Wednesday. The number of trades by institutional investors grew from 2% on Monday, to 4% on Tuesday, to 5% on Wednesday. Those numbers came in line with activity throughout July.
Indeed, more headlines out of Detroit surrounding its bankruptcy filing contributed to an increase in volatility this week. Municipal bond mutual funds that report weekly showed $2.24 billion in outflows, according to Lipper, the second highest outflows number this year.
"The negative Detroit headlines almost certainly drove a fair amount of that," wrote Dan Toboja, vice president at Ziegler Capital Markets. "The crossover buyers that swooped in at the end of last week have not been as aggressively bidding the market this week. Focus for most buyers continues to be on the short end and cleaner general market paper."
Through Thursday, the 10-year and 30-year Municipal Market Data yields rose one basis point for the week to 2.71% and 4.22%, respectively. The two-year remained unchanged at 0.43%.
The 10-year and 30-year Municipal Market Advisors yields rose three basis points each to 2.92% and 4.32%, respectively. The two-year yield rose one basis point through Thursday to 0.55%.
