Market Close: Munis Firm On Week, Outperform YTD

Trading volume fell by half on Wednesday even as dealers unloaded over $1 billion in bonds to customers ahead of the Thanksgiving holiday.

Volume traded by the afternoon fell 47.1% compared with the average of the previous five Wednesday trading sessions with $2.452 billion traded. Dealers selling bonds to customers made up almost half of the activity, with $1.13 billion sold. Dealers bought from customers $756.3 million in bonds. Interdealer activity totaled $562.7 million of all trades, or 23%.

Overall activity fell but traders said retail clients were still interesting in buying bonds at attractive prices. “We are selling some bonds into retail,” a Boston trader said. “At the right price, retail is still a buyer.”

Secondary trading activity fell in tandem with a drop off in primary supply over the week, leaving investors gobbling up fewer bonds available. One of the week’s largest deals, $150 million of South Carolina general obligation bonds, was priced on Tuesday richer than the triple-A benchmark scales.

Light supply pushed muni prices higher for the week. For the week through Wednesday, the 10-year triple-A Municipal Market Data yield fell one basis point to 2.65% and the 30-year yield dropped four basis points to 4.10%. The two-year was flat for the week at 0.33%.

Yields on the Municipal Market Advisors benchmark scale also ended firmer for the week. The 10-year yield fell one basis point to 2.72% and the 30-year yield dropped three basis points to 4.34%. The two-year yield fell one basis point to 0.37%.

Treasuries were flat to firmer for the week through Wednesday. The two-year and 30-year yields fell one basis point each to 0.29% and 3.83%. The benchmark 10-year yield was flat for the week at 2.75%.

For the year, munis outperformed Treasuries even with negative headlines from Puerto Rico and Detroit, said Jonathan Lewis, chief investment officer at Samson Capital Advisors.

Year to date, three-year municipal bonds returned 1.3% compared to 0.4% from Treasuries, according to the Barclay’s Index. Five-year munis returned 0.90% compared to a negative 0.90% return for Treasuries. 10-year munis fell 0.20% for the year, compared to a 5.6% drop in Treasuries.

“The financial press has been dominated by bad news stories about munis largely centered around Detroit and Puerto Rico, and many investors have left the municipal market for other sectors in search of 'safety,’” Lewis said. “To the extent investors were scared by the headlines and moved to Treasuries as a 'safe haven,’ the irony, is that in key maturities municipals have outperformed Treasuries by wide margins.”

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