The tax-exempt market ended a lackluster week of light supply and limited trading on a quiet note with yields steady across the board.
With the government shutdown and Oct. 17 deadline for the debt ceiling, traders took this week to step out of the markets.
"It's quiet in the muni market," a New York trader said. "There are not as much bids wanted out there and no jobs number because of the shutdown. People might just be looking towards the deals next week." Friday morning, the Bureau of Labor Statistics was expected to release its September month report and is delayed indefinitely.
In the secondary market, trades compiled by data provider Markit showed a mix of strengthening and weakening Friday.
Yields on California 5s of 2022 and Texas Private Activity Board Surface Transportation Corp. 6.75s of 2043 slid three basis points each to 2.70% and 6.27%, respectively. Yields on Colorado, Texas, Independent School District 5s of 2043 fell two basis points each to 4.31%.
Still, other trades were weaker. Yields on Hawaii 5s of 2020 and Oregon Health Sciences University 4s of 2031 increased three basis points each to 2.14% and 4.40%, respectively.
Yields on Massachusetts State Development Finance Agency 4.2s of 2031 and New Jersey Transportation Trust Fund Authority 4s of 2031 increased two basis points each to 4.25% and 4.14%, respectively.
Even with light supply this week - the market saw under $3 billion in new pricings - demand waned further as outflows accelerated to $690 million for the week ending Oct. 2 from the previous week's $159 million in outflows. Funds that report figures weekly to Lipper FMI have seen 19 consecutive weeks of outflows.
"Municipal bond outflows have continued but at a slower pace than the recent highs," analysts at Interactive Data wrote. "However, even with outflows the lack of new issuance this week has kept the markets fairly quiet and unchanged. The uncertainty with the government impasse appears to have made investors more tentative."
Outflows, along with rising yields throughout most of this year, have pushed muni bond prices down. The S&P National AMT-Free Municipal Bond Index fell 3.49% for the year. Still, demand for shorter maturing bonds pushed the S&P Short-Term National AMT-Free Municipal Bond Index up 0.53% for the year.
Continuing headlines out of Puerto Rico, including Thursday's announcement by Moody's Investors Service that it downgraded Puerto Rico's Sales Tax Financing Corp. bonds to A2 from Aa3, pushed the S&P Municipal Bond Puerto Rico index down 1.19% for October and down 17.42% year to date.
Puerto Rico bonds continued to trade lower Friday morning following the announcement. "High-grade and high-yield bonds are steady and unchanged. Puerto Rico credits are weaker and continue their downward trend," Inderactive Data analysts wrote.
Looking to next week, $3.76 billion in new deals are expected, up from the past week's revised $2.77 billion. On the negotiated calendar, $3.04 billion should be issued, up from the previous week's $2.21 billion. In the competitive market, $724.1 million is expected to be issued, up from the past week's revised $558.8 million.
