Yields on benchmark triple-A rated municipal bonds fell to the lowest in at least three months, fueled by strong reception in the primary market and a rally in Puerto Rico debt in the secondary market.
The 10-year Municipal Market Data yield fell 10 basis points for the week through Thursday to 2.50%, its lowest yield since June 20 when the 10-year traded at 2.48%. The 30-year yield dropped 14 basis points during the week to 4.08%, its lowest since July 18 when it yielded 4.03%.
“Munis seem to have found some stability as of late,” said Chip Hughey, fixed income trader at Caprin Asset Management. “The municipal primary market garnered significant attention this week now that traders have tabled their near-term tapering anxiety and expect a more predictable rate environment heading into year end.”
Primary issuance led the surge in demand. California issued over $2 billion in general obligation bonds with 44% of the deal scooped up by retail investors. New York City’s Transitional Finance Authority issued $650 million of triple-A rated bonds with spreads up to 35 basis points to the MMD scale.
“According to some, the $2.2 billion California deal struggled a bit and prices had to be revised lower to increase buyer interest,” Hughey said. “In reality, we believe the deal was still sold at strong levels even with the minor changes, benefiting from the limited supply, powerful California-specific demand and positive fundamental outlook for the state.”
In the secondary market, Puerto Rico bonds traded stronger throughout the week, aided by an investor call from Commonwealth officials on Oct. 10 seeking to reassure the market of its ability and willingness to pay its debt obligations.
“Puerto Rico continues to rally another 15 basis points with a decent amount of volume,” analysts at Interactive Data said Friday afternoon.
Earlier in the week, one CUSIP of Puerto Rico Sales Tax Financing Corp. 5.25s of 2041 traded in the 75-dollar range, up in price from the high 50- to 60-dollar range where it traded mid-October.
One CUSIP of Puerto Rico Aqueduct and Sewer Authority 6.125s of 2024 traded into the 80-dollar range from the low 70-dollar range mid-month.
For the week through Oct. 24, the 20-Bond GO Index of 20-year general obligation yields declined 12 basis points this week, to 4.56%. The index is at its lowest level since Oct. 3, when it was 4.53%.
The 11-Bond GO Index of higher-grade 20-year GO yields dropped 12 basis points this week, to 4.25%, also its lowest level since Oct. 3, when it was 4.24%.
The Bond Buyer’s Revenue Bond Index, which measures 30-year revenue bond yields, fell nine basis points this week, to 5.16%. This is the lowest the index has been since Aug. 8, when it was 5.05%.
The yield on the U.S. Treasury’s 10-year note declined eight basis points this week, to 2.51%, which is its lowest level since July 3, when it was also 2.51%.
The yield on the Treasury’s 30-year bond dropped five basis points this week, to 3.61%, which is the lowest it has been since July 3, when it was 3.50%.
Other municipal benchmark scales showed a rally in triple-A municipal bond yields. The 10-year Municipal Market Advisors yield slid 10 basis points for the week through Thursday to 2.65% and the 30-year yield fell 11 basis points to 4.24%.
