Munis Gain Momentum Despite Outflows, Posting Gains

The tax-exempt market made slow gains in every session this week as buyers became more confident about participating in the market as the week progressed.

Video-Muni Week in Review: September 13, 2013

With 16 consecutive weeks of outflows totaling $26.4 billion, and $1.9 billion in redemptions the most recent week, traders were surprised by the strength in the market. Even uncertainty about the Federal Open Market Committee meeting Wednesday and the possibility of tapering wasn't enough to give munis pause.

"It didn't seem like the market had quite the strength on Monday and Tuesday that it had on Thursday," said Pete Stare, an underwriter at FirstSouthwest Co. "There are a lot of things people are looking at including Syria and the Fed meeting, but surprisingly enough there was a lot bigger movement in yields coming down than I thought was happening."

Even with the uncertainty, yields were too high for buyers to resist.

"People are starting to put money to work," Stare said. "When you are getting bonds north of 5% for a double-A credit, that certainly has appeal. Buyers are also going from 5% to 5.25% coupons."

Higher issuance this week also gave buyers more to choose from, helping drive interest. The market saw $5.91 billion, including $3.86 billion in negotiated deals and $2.05 billion in competitive deals.

In a sign of strength, Battle Creek, Mich. came to market with $15.4 million of insured, limited-tax general obligation bonds, after postponing the deal in August following Detroit's bankruptcy filing. Hutchinson Shockey Erley & Co. priced the GOs for institutions Thursday and lowered yields as much as 17 basis points from retail pricing Wednesday.

Secondary trading took most of the focus this week and volume was up for all trades compared to last week's light trading volume following the Labor Day holiday weekend.

On Tuesday, there were 51,568 trades with a par value of $8.431 billion, according to Interactive Data. That is up from the previous Tuesday's 43,124 trades with a par value of $5.920 billion. Interdealer trading increased to 17,013 with a par value of $2.385 billion, up from the previous Tuesday's 13,998 of $1.480 billion.

Customer sell trades were up to 11,021 with a par value of $2.608 billion from the previous Tuesday's 9,134 with $2.074 billion. Buy trades on Tuesday rose to 23,534 worth $3.438 billion, up from the previous Tuesday's 19,992 trades with a par value of $2.366 billion.

On Wednesday, activity was up even more, according to Interactive. Trading volume rose to 54,907 with a par value of $10.844 billion, up from the previous Wednesday's 51,917 with a par value of $8.080 billion. Interdealer trading rose just slightly to 17,545 with $3.295 billion, up from the past Wednesday's 17,216 trades of $2.206 billion.

Customer sell trades rose to 11,155 with $2.966 billion from the previous week's 10,046 of $2.372 billion. Customer buy trades also increased to 26,207 worth $4.584 billion from the past Wednesday's 24,655 worth $3.503 billion.

For the week through Thursday, the Municipal Market Data scale was firmer and the 10-year yield dipped below 3.00% for the first time in September. The 10-year yield slid 14 basis points to 2.87% and the 30-year yield dropped eight basis points to 4.41%. The two-year was steady at 0.43% for the week.

The Municipal Market Advisors benchmark scale also ended stronger. The 10-year yield fell 10 basis points for the week through Thursday to 3.04% and the 30-year yield dropped eight basis points to 4.52. The two-year was steady at 0.55% for the week ending Thursday.

 

For reprint and licensing requests for this article, click here.
Buy side
MORE FROM BOND BUYER