Largely stable rates highlighted a subdued municipal market this week.
The market maintained strength at the far end of the curve as investors’ reach for yield in high grades continued to push the 30-year triple-A further into record territory. Primary deals have found willing buyers without moving yields much; the secondary market saw just moderate demand over the period.
Still, muni bond indexes showed greater movement over the week. The Bond Buyer’s 20-bond index of 20-year general obligation yields declined eight basis points this week to 3.75%, which is its lowest level since May 17, when it was also 3.75%.
The 11-bond index of higher-grade 20-year GO yields also dropped eight basis points this week to 3.54%. This is its lowest level since May 17, when it was 3.53%.
The yield on the U.S. Treasury’s 10-year note rose four basis points this week to 1.52%. But it remained below its 1.60% level from two weeks ago.
The yield on the Treasury’s 30-year bond increased five basis points this week to 2.61%, but still remained below its 2.72% level from two weeks ago.
Technicals remain strong across the market. Stable rates guided tax-exempts on the week, said Kenneth Friedrich, head of municipal sales, trading and syndication at RBC Capital Markets.
“Some of the reluctance buyers have had has dissipated as Treasury yields have stabilized,” he said. “The more stability there is in the rates markets, generally, the better it is for municipals.”
Regarding one of those technicals, muni ratios to Treasuries fell modestly across the belly and long end of the curve since last Friday. But they remained in cheap territory, above 110% across the curve.
The two-year provided the exception, vaulting 13 percentage points to 141%. The 10-year crept down two percentage points to almost 114%.
Since last Friday, the 30-year ratio fell four percentage points to 110%.
The week’s biggest deal, $1.36 billion of Illinois Department of Employment Security unemployment insurance fund building receipts revenue bonds, saw very strong interest in one-day pricing Wednesday, Alan Schankel, a managing director at Janney Capital Markets, wrote in a research note. “Based on a strong order book,” he wrote, “yields were lowered across all maturities by 7 to 15 basis points in final pricing.”
Muni yields since last Friday were mostly steady on the short and intermediate sections of the curve, according to Municipal Market Data numbers. The benchmark 10-year triple-A inched down one basis point over the period to 1.73%.
The two-year ticked down one basis point as well, to 0.31%. The 30-year dropped six basis points to an all-time low of 2.90%.
It has also been difficult of late to replace bonds, Randy Smolik, an analyst at MMD, wrote in a market post. This has forced dealers to continue to pay stronger levels. “This seemed mostly the case for serials and dollar bonds beyond the 10-year range,” he wrote.
The revenue bond index, which measures 30-year revenue bond yields, fell five basis points this week to 4.51%. It is now at its lowest level since May 17, 2007, when it was 4.46%.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, rose one basis point this week to 0.23%, but remained below its 0.24% level from two weeks ago.
The weekly average yield to maturity of the Bond Buyer municipal bond index, which is based on 40 long-term bond prices, declined eight basis points to an all-time low of 4.31%. The previous record was 4.38%, set six weeks ago for the week ended June 7.