NEW YORK — Caution reigns in the municipal market Monday amid the fallout of the Standard & Poor’s downgrade of the United States’ credit rating. The market awaits the rating agency’s assessment of muni securities closely tied to federal government spending.
But for muni investors, low nominal yields and light issuance remain its guiding forces, a trader in Chicago said. And while Treasury yields rally and muni yields continue to firm at the long end, uncertainty and caution have so far led to a quiet day of trading in the secondary.
“Regardless of how good the [muni-Treasury] ratios are, investor interest is a function of how the nominal yields don’t whet a lot of appetites,” the trader said.
Muni yields are lower at the back end of the curve, as well as at various spots throughout, according to the Municipal Market Data triple-A scale. Yields through 2016 were unchanged, as were those between 2021 and 2031. Those between 2017 and 2020, as well as from 2032 and 2036, were flat to one basis point lower. Maturities beyond 2036 fell one to three basis points.
The benchmark 10-year muni yield held steady, closing the week at 2.38%. It equaled its lowest yield in almost 10 months, dating to Oct. 21. It dropped 29 basis points last week.
The 30-year muni yield ended at 3.95%, its lowest since early November. Its yield dropped 40 basis points during the week.
The two-year muni yield held at 0.35%, its lowest yield since Aug. 31, 2010.
Treasury yields started this week firmer across the curve in the wake of the news from Standard & Poor’s and continue to take on water. The 10-year Treasury yield has dropped 19 basis points to 2.37% crossing midday.
The two-year Treasury yield continues on its plunge into the record books. It ticked down three basis points to a record low of 0.25%.
The 30-year yield has tumbled 14 basis points on the morning to 3.70%, two points above its nadir, reached on Oct. 6.
Market pros point to a lack of supply as a reason muni yields have been falling. This week, the situation likely won’t improve. The industry predicts that municipal bonds expected to be sold this week will total $2.25 billion versus a revised $3.24 billion last week.
The equities markets have reacted to the news of the Standard & Poor’s downgrade, and general economic uncertainty, as one might expect: with fear and selling. The three market indexes have all fallen by at least 3.00% heading into the afternoon. For its part, the Dow Jones Industrial Average has dropped by 349 points, thus far.