Friday’s trading session offered little for anyone in the municipal bond market. Yields barely moved and remained oppressively low for many participants. And the day’s inactivity proved Thursday’s rally to have been a brief affair.
“It was a little bit of a sell-off today,” a New York trader said. “That could help on Monday; we certainly could use a rise in yields. If you went to buy something, you certainly got it cheaper, because probably no one else was trading anything out there, either.”
Tax exempt yields saw slight weakening Friday. They were steady through six years, according to the Municipal Market Data scale. Beyond that, they inched up one basis point. The benchmark 10-year muni yield ticked up one basis point Friday to 2.56%, after dropping three basis points the previous session. It increased one basis point on the week and 59 basis points since it sat at a record low on Sept. 23.
The 30-year yield inched up one basis point as well Friday to 3.72. On Thursday, it fell four basis points. It rose one basis point for the week.
The two-year yield held steady at 0.45% for a third consecutive session. The past week, it pushed two basis points higher.
Treasury yields mostly rose Friday, following a brief rally one day earlier. The benchmark 10-year Treasury yield climbed seven basis points to 2.25%. For the week, it rose 19 basis points.
The 30-year jumped eight basis points to 3.23%, and 22 basis points on the week. The two-year yield slipped two basis points to 0.27%. Over the week, it has decreased two basis points.
Market estimates have municipal bonds that are expected to be sold this week totaling $6.7 billion. Last week’s number was revised downward to $4.5 billion.
Market watchers have noted how more than half of the expected new supply should arrive in just three deals. They include a $2 billion California general obligation loan, $1 billion of New York Hudson Yards Infrastructure Corp. bonds, and a competitive deal involving $825 million of Pennsylvania GOs.
A large amount of supply emerging from a few issuers could be a positive for the market, according to MMD analysts, Randy Smolik and Dominic Vonella.
“The limited array of issuers could help to create a healthier tone for the municipal market, which has faced a severe bout of weakness over the past couple weeks,” they wrote in a recent research post. “Highly concentrated new issue supply can often create a dichotomy in the market with the general market potentially able to outperform credits with heavy supply.”
A trader in Dallas doesn’t foresee a problem with the week’s coming volume.
“Those kinds of deals seem to be getting done,” he said. “It’s the smaller deals that [can be difficult]. Guys are selling bonds out of syndicates from a couple weeks ago down 25 basis points, down 30, down 35. That stuff starts to sting.”
Muni ratios to Treasuries have fallen recently, but still remain attractive when compared with their averages for 2011. They reached highs for the year on the intermediate and long ends of the curve in the week ending Oct. 7.
Two-year, 10-year and 30-year ratios stand at 167%, 114% and 115%, respectively. That compares to averages in 2011 of around 113%, 95% and 106%, respectively.