The tax-exempt market ended February on a high note with a rally across the curve.
During the last week of the month, munis climbed higher as demand outweighed supply, and prices were buoyed by a stronger Treasury market.
“Overall it was a solid week for bonds, and for munis as well,” said Richard Ciccarone, chief research officer at McDonnell Investment Management, adding that most of the activity was in the intermediate part of the curve. “Most activity this week was in the five-year and 10-year muni space and there was outperformance relative to the long-end of the market.”
Munis appeared to follow the lead of the Treasury market this week. “Treasuries outperformed munis and that had a lot to do with anxiety in Europe and the sequestration,” he said. “Federal Reserve Chairman Ben Bernanke also announced quantitative easing is still on.”
In the primary market, most underwriters were able to lower yields in repricing. Morgan Stanley priced on Wednesday $838.4 million of New York City general obligation bonds, rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Yields on the first series of $500 million were cut as much as seven basis points inside 2025 from retail pricing but were increased as much as three basis points on maturities outside 2027. Yields on the series of $223.1 million were cut as much as nine basis points on maturities inside 2025 from retail pricing but were increased as much as two basis points on the 2027 and 2029 maturities.
“Deals were oversubscribed this week and I think that even though the calendar was up and was one of the better calendars this week, deals were getting done,” Ciccarone said.
In the secondary market, activity was more robust this week, market participants said. “Offerings were up, and there were a large number of bid lists and trading activity,” Ciccarone added.
According to the Municipal Securities Rulemaking Board, there was significant activity throughout most of the trading session.
On Monday, there were 38,789 trades, down only slightly from the 30-day average of 39,162 trades. Par amount traded was $7.119 billion, down from the 30-day average of $10.982 billion.
By Tuesday, activity started to pick up. There were 40,110 trades, up from the 30-day average of 39,286 trades. Par amount traded came in at $9.379 billion, down just slightly from the 30-day average of $10.926 billion.
On Wednesday, there were 43,853 trades, up significantly from the 30-day average of 39,492 trades. Par amount traded was $13.872 billion, higher than the 30-day average of $11.073 billion.
On Thursday, there were 42,616 trades, up from the 30-day average of 39,519 trades. Par value traded was $11.886 billion, up from the 30-day average of $11.060 billion.
In retail trades of under 100 bonds — or $100,000 par value — secondary activity was much stronger this week than last week, according to data from BondDesk Group.
There were 62,225 buy trades for the week ending Feb. 27 compared to the previous week’s 47,517 buy trades. The number of buy trades was also higher this week than the previous five weeks. Sell trades were also up significantly to 35,768 versus the previous week’s 29,136 trades. The number of sell trades was higher than the previous five weeks.
The ratio of buy trades to sell trades came in at 1.7; the ratio has been 1.6 or 1.7 for the previous five weeks.
Dollar volume traded also jumped compared to the previous week. There were $1.753 billion buy trades for the week ending Feb. 27 compared to the $1.320 billion buy trades for the week before. Sell trades spiked up to $1.060 billion compared to the previous week’s $845 million sell trades. The number of buy trades and sell trades was higher than the previous five weeks.
The ratio of buy trades to sell trades in dollar amount rose to 1.7, higher than the previous week’s 1.6 and the highest of the last five weeks.
Overall for the week, yields ended lower as the market rallied.
Through Thursday, yields on the Municipal Market Data triple-A GO scale ended lower for the week. The 10-year yield fell nine basis points to 1.81% while the 30-year yield dropped three basis points to 2.91% for the week. The two-year closed steady at 0.31%.
Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale also closed lower. The 10-year yield fell seven basis points for the week through Thursday to close at 1.83% while the 30-year yield dropped three basis points to 2.99%. The two-year yield fell two basis points during the week to 0.33%.
Treasuries also posted strong gains for the week. As of Friday afternoon, the benchmark 10-year yield dropped 10 basis points for the week to 1.87% while the 30-year yield plunged nine basis points to 3.07%. The two-year yield fell two basis points to 0.25% for the week.
