The tax-exempt market ended steady on Thursday for the third consecutive trading session as trades weren’t strong or weak enough to budge muni yields in any direction.
While the market may not have strengthened or weakened, there was a lot of trading activity as buyers stayed busy in the secondary.
“There are still things going on inside the market,” a trader located in the Southeast region said. “There is movement inside a market that appears to be going nowhere.”
Indeed, while yields have remained unchanged for most of the week, trading volumes have spiked. According to data from the Municipal Securities Rulemaking Board, there were over 50,000 trades on Wednesday, up from the 30-day average of 35,636 trades. Par amount traded on Wednesday was $16.8 billion, up from the 30-day average of $11.1 billion.
And according to data from BondDesk Group, trading volume over the past week has spiked. For the week ending Dec. 5, there were 64,327 buy trades, well more than the previous week’s 41,179 buy trades, and more than any of the previous five weeks. There was also an increase in sell trades over the past week, with 39,547 trades. Sell trades over the past week were higher than any of the previous five weeks.
Figures from BondDesk Group show par amount of trades has spiked over the past week. There were $1.83 billion of buy trades and $1.22 billion of sell trades. Par amounts were higher than any of the previous five weeks.
Still, with yields hovering only a few basis points above record lows, some traders said apathy has started to move in. “It’s steady and the market is trading very heavy,” a Chicago trader said. “There is undesirable inventory. Certain names and certain structures are undesirable and unless there is something good, it’s not moving.”
He added there is money waiting to be put to work but at these yield levels, traders are more picky. “Spreads are so tight that it’s just not a move for anyone.”
Other traders agreed that with yields so low, the market isn’t expected to make any big moves. While new issues were received well and yields hover just above their record lows, the market has stabilized.
“The muni market tone remains rudderless,” said Dan Toboja, vice president at Ziegler Capital Markets. “Volume in the market has slowed and now we’ve reached a point of stability. While most participants don’t believe the current rates will continue, cash still needs to be put to work.”
He added the primary was received well this week. “The strategy for many has been selective new issues purchases. The deals this week were all well subscribed and successfully placed.”
“Spreads for yield have tightened and customers are willing to buy bonds - even lower-rated - on yield to call basis,” he said. “Five percent coupons have come into considerable demand while the $110-plus dollar prices are still not historically friendly to retail investors.”
In the primary market, Bank of America Merrill Lynch priced $460 million of San Francisco Bay Area Toll Authority bridge revenue bonds, rated Aa3 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-minus by Fitch Ratings.
The first series of $50 million matures in 2047 and was priced 70 basis points above the SIFMA index. The bonds are callable at par in 2019. The second series of $100 million matures in 2047 and was priced 70 basis points above the SIFMA index. The bonds are callable at par in 2019.
The third series of $110 million matures in 2045 and was priced 110 basis points above the SIFMA index. The bonds are callable at par in 2023. The fourth series of $50 million matures in 2045 and was priced 110 basis points above the SIFMA index. The bonds are callable at par in 2023.
The fifth series of $150 million matures in 2036 and was priced 125 basis points above the SIFMA index. The bonds are callable at par in 2026.
In the competitive market, Bank of America Merrill Lynch won the bid for $200 million of Kansas Department of Transportation highway revenue bonds, rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch.
Yields ranged from 0.45% with a 5% coupon in 2015 to 2.36% with a 4% coupon in 2032. The bonds are callable at par in 2022.
Wells Fargo Securities won the bid for $155.3 million of Massachusetts State College Building Authority project revenue bonds, rated Aa2 by Moody’s and AA by Standard & Poor’s.
Yields ranged from 0.36% with a 5% coupon in 2014 to 3.157% with a 3% coupon in 2042. The bonds are callable at par in 2022.
In the secondary market, trades compiled by data provider Markit showed mostly weakening. Yields on Massachusetts 5.5s of 2020 jumped four basis points to 1.28% while Bay Area Toll Authority 5s of 2017 increased three basis points to 0.68%.
Yields on Dormitory Authority of the State of New York 5s of 2037 and Florida Municipal Power Agency 5s of 2026 rose two basis points each to 2.65% and 2.47%, respectively.
On Thursday, the Municipal Market Data scale ended steady for the third consecutive trading session. The 10-year yield finished flat at 1.48%, one basis point above the 1.47% record low set Nov. 28. The 30-year yield ended unchanged at 2.48%, dangling above its record low of 2.47% set Nov. 28. The two-year finished flat at 0.30% for the 49th consecutive trading session.
Treasuries finished stronger Thursday. The benchmark 10-year yield and the 30-year yield fell two basis points each to 1.58% and 2.77%, respectively. The two-year was steady at 0.25%.
