Strong reception to new issues fueled the municipal market early in the week, while solid activity in the secondary market pressured yields midweek.
Investors cottoned to $2.5 billion of Pennsylvania Economic Development Financing Authority bonds as well as the upsized New York City general obligation bonds, which arrived cheap and were snapped up.
Since last Friday, muni yields have outperformed rising Treasuries. All told, tax-exempt yields are hovering within several basis points from record lows, while the overall market has been flat or stronger for 14 straight sessions.
Muni bond indexes covering all but the short end fell on the week, reflecting the fall in intermediate and long-term rates. The 20-bond index of 20-year general obligation yields dropped six basis points this week to 3.61%, which is the lowest level for the index since July 26, when it was also 3.61%.
The 11-bond index of higher-grade 20-year GO yields also fell six basis points this week to 3.40%. This is its lowest level since Feb. 16, when it was 3.39%.
The yield on the U.S. Treasury’s 10-year note increased four basis points this week to 1.68%, but remained below its 1.78% level from two weeks ago.
The yield on the Treasury’s 30-year bond rose seven basis points this week to 2.89%, but is still below its 2.96% level from two weeks ago.
The major deals this week, which have been driving the market, have mostly been bumped. They’ve then gone on to perform in the secondary market, according to David Manges, managing director of municipal trading at BNY Mellon Capital Markets.
“We’ve handled a reasonable supply this week without any problems,” he said. “The price action continues to be positive. And there continues to be customer money available, even at these lower yields.”
Since last Friday, muni bond yields have mostly fallen. Treasuries, by comparison, have stagnated through the period through Wednesday, only to back up suddenly on Thursday.
The triple-A tax-exempt yield has fallen three basis points since last Friday, to 1.67%, according to Municipal Market Data numbers. It sits seven basis points above its record low.
The 30-year slipped one basis point over the period to 2.85%, a mere five basis points above its all-time low. The two-year held at 0.30% for an eighth straight session.
At these levels, investors have had little choice over the past year but to engage in periodic “grab-fests” so as not to leave money on the sidelines or in cash for too long, Manges said.
“No one likes these yields, but portfolio managers are terribly disadvantaged to stay in cash and hate to do so,” he said. “They do have to put the money to work; anyone who’s stayed in cash this year has most likely underperformed their benchmark.”
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, increased one basis point this week to 0.25%. That is the highest level for the index since Aug. 22, when it was 0.27.
The Bond Buyer’s revenue bond index, which measures 30-year revenue bond yields, declined three basis points this week to 4.28% — its third consecutive all-time low. The Bond Buyer began calculating the revenue index on Sept. 20, 1979.
The weekly average yield to maturity of the Bond Buyer municipal bond index, which is based on 40 long-term bond prices, declined four basis points this week to its second consecutive all-time low of 4.17% for the week ending today.
The Bond Buyer began calculating the yield to maturity on Jan. 1, 1985.