The week started out solidly for the municipal market, marked by robust demand, rallying yields and accelerated primary deals.
But as Treasury yields reversed course midweek, the muni market ground to a halt and even began to pull back from its gains. Many traders and investors struggled to make sense out of the volatility, said David Manges, managing director of municipal trading at BNY Mellon Capital Markets.
"Treasuries have been very volatile over the past week, post-employment number on Friday," he said. "We're dealing with the ramifications of that, and so there have been large changes in [triple-A yields] this week."
The week's largest deal, $1.3 billion of California various-purpose general obligation bonds, slogged through a lackluster two-day retail order period. But it saw only modest cuts to prices early in Wednesday's institutional stage.
"The headline supply numbers have been decently large," Manges said. "But away from the big [$800 million New York City Transitional Finance Authority] and Cal deals, they're not especially onerous."
Tax-exempt yields were lower on the week after Monday and Tuesday's strong sessions, particularly in the belly of the curve. But they still underperformed Treasuries on the short and long ends.
Muni bond indexes for the week fell in all but the short end. The Bond Buyer's 20-bond GO index of 20-year general obligation yields declined 11 basis points this week to 3.97%, which is its lowest level since March 15, when it was 3.95%.
The 11-bond GO index of higher-grade 20-year GO yields dropped nine basis points this week to 3.77%. That represents its lowest level since March 15, when it was 3.72%.
The yield on the Treasury's 10-year note declined 18 basis points this week to 2.06%. That is its lowest level since March 8, when it was 2.03%.
The yield on the Treasury's 30-year bond dropped 15 basis points this week to 3.22%. It rests at its lowest level since March 8, when it was 3.18%.
The benchmark 10-year triple-A yield over the last 12 months has fallen 127 basis points, to 2.00% Thursday from 3.27% on April 11, 2011. Yields for the 10-year reached record lows around mid-January and early February of this year, according to Municipal Market Data.
But before the rally earlier this week, the 10-year triple-A had been easing down from a 65 basis point hike it experienced from early February through March 20. Muni ratios to Treasuries at that range continue to sit in slightly rich territory, currently at 97.09%.
Still, supply this year has been only moderate, which is tremendous, Manges said, given the low absolute rates that prevail.
Fortunately, he added, demand in the market has been more than sufficient to accommodate it.
"Although everybody's dealing with the effects of the volatility, there seems to be more than enough cash to deal with the supply in the market," Manges said. "There's still cash in the market that needs to be invested."
The revenue bond index, which measures 30-year revenue bond yields, fell three basis points this week to 4.85%. That is the same level it reached two weeks ago.
The Bond Buyer's one-year note index, which is based on one-year GO note yields, was unchanged this week at 0.25%. It remains at its highest level since Feb. 29, when it was also 0.25%.
The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, declined five basis points this week to 4.57%. It is the lowest weekly average for the yield to maturity since the week ended March 1, when it was also 4.57%.