Market Close: Munis End Week on Firm Tone

The tax-exempt market ended on a firmer tone Friday after a soft start to the week.

After posting losses Wednesday, the market firmed Thursday and continued to post gains into Friday.

“It’s quiet but a bit stronger,” a New York trader said.

Still, some participants said the overall market lacked momentum and direction.

“The market is stagnant,” a Chicago trader said. “You get stuff done but I don’t think anyone wants to make a huge bet either way. Just bob and weave. There is money out there but just not a whole lot of direction. The sales guys are on suicide watch. It’s just not easy right now.”

In the secondary market, trades compiled by data provider Markit showed a mix of strengthening and weakening.

Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 6.5s of 2047 and California 5s of 2038 fell two basis points each to 6.90% and 2.69%, respectively. Yields on San Antonio electric and gas 5s of 2022 also fell two basis points to 1.93%.

Other trades were weaker. Yields on Massachusetts Bay Transportation Authority 5.25s of 2031 jumped three basis points to 3.08% while Dormitory Authority of the State of New York 5s of 2031 rose one basis point to 2.79%.

On Friday, municipal bond market scales finished steady to stronger for the second session.

Yields on the Municipal Market Data triple-A GO scale ended steady. The 10-year was flat at 1.90% for the third session while the 30-year yield finished steady at 2.94% for the second session. The two-year closed steady at 0.31% for the fourth session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale ended flat to one basis point lower. The 10-year yield was steady at 1.90% for the third session while the 30-year yield closed flat at 3.02% for the second session. The two-year finished unchanged at 0.35% for the 19th session.

Treasuries posted mostly gains Friday for the third session. The benchmark 10-year yield and the 30-year yield fell one basis point each to 1.97% and 3.16%, respectively. The two-year yield rose one basis point to 0.27%.

In the primary market next week, $7.80 billion in bonds should come to market, up from this week’s revised $4.20 billion. On the negotiated calendar, $6.73 billion is expected, up from this week’s revised $1.87 billion. On the competitive market, $1.07 billion should be auctioned, down from this week’s revised $2.33 billion.

And as yields continue to trade at relatively low levels, investors continue to move down the credit scale in search for yield, according to J.R. Rieger, vice president of fixed income at Standard & Poor’s Dow Jones Indices.

“High-yield municipal bonds continue their relentless rally,” Rieger noted, adding the Standard & Poor’s Municipal Bond High-Yield Index has returned over 1.4% year-to-date. The spread between investment grade and high-yield bonds has compressed to 277 basis points from 297 basis points at the end of 2012. It has almost compressed from 407 basis points at the end of 2011.

“The investment grade municipal bond market has been pretty steady,” he added, noting that the Standard & Poor’s National AMT-Free Municipal Bond Index returned 0.69% year-to-date. The weighted average yield-to-worst for bonds in the index is 1.98%, or a 3.05% taxable equivalent yield. That compares to the 2.6% weighted average yield in the Dow Jones Corporate Bond Index.

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