Market Close: Munis End Strong Week on Light, Steady Note

The tax-exempt market ended a stronger week that saw demand for new issues and lower yields in the secondary market on a steady note Friday, as traders took a step back after 16 sessions of mostly lower yields.

Yields on the Municipal Market Data scale have been flat or lower since Sept. 5, and after the run-up in prices that pushed the 10-year yield down 50 basis points, trading paused ¬Friday. The 30-year MMD yield fell 40 basis points over the same time period.

“Not much is happening,” a New Jersey trader said. “No one is budging. You show a bid one or two basis points away and bids are close to the offering but the offering guy isn’t hitting the bid and the guy with the bid isn’t jumping at the offering. So there is not a lot of secondary.”

“The market is about flat and after new issuance this week guys are settling down,” a Virginia trader said. “But generally it seemed like this week was positive. New issuance was well received and flows are still negative but the trend is slowly reversing.”

For the week ending Sept. 25, outflows from municipal bond funds slowed to a pace not seen since late May, with only $159 million of redemptions. That is down from the previous week’s $1.1 billion in outflows, and marks the 18th consecutive week of investors pulling cash.

This trader said supply next week is more than manageable and the 30-day calendar looks the same. “It’s somewhat promising and supportive of a good tone.”

In the secondary market Friday, trades compiled by data provider Markit showed mostly strengthening.

Yields on Lexington County, S.C., School District 4.25s of 2038 fell four basis points to 4.45% and University of California 5s of 2038 fell two basis points to 4.32%.

Yields on Arizona’s Salt Verde Financial Corp. 5s of 2037 and Connecticut 5s of 2025 fell two basis points each to 5.10% and 3.15%, respectively.

Yields on Dormitory Authority of the State of New York 4s of 2029 and Deltona, Fla., Utility System 5.125s of 2028 slid one basis point each to 4.04% and 4.05%, respectively.

Still, other trades were weaker. Yields on Northmont, Ohio, City School District 4s of 2042 and Hawaii 5s of 2022 increased two basis points each to 4.82% and 2.57%, respectively.

On Friday, yields on the triple-A Municipal Market Data scale ended unchanged. The 10-year and 30-year yields were steady for the third session at 2.54% and 4.11%, respectively. The two-year was steady at 0.36% for the sixth session.

Yields on the Municipal Market Advisors scale ended steady. The 10-year and 30-year yields were unchanged at 2.70% and 4.25%, respectively. The two-year was steady at 0.54% for the seventh consecutive trading session.

Treasuries were stronger Friday, reversing losses from Thursday. The two-year yield slid one basis point to 0.34% and the benchmark 10-year yield fell two basis points to 2.63%. The 30-year was steady at 3.69%.

Looking to next week, the municipal bond market can expect $3.46 billion in new issues, down from this week’s revised $4.37 billion. The negotiated market can expect $2.94 billion, down from this week’s revised $3.76 billion. In competitive sales, $522.3 million should be auctioned, down from this week’s revised $610.6 million.

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