The Fourth of July holiday put the municipal market on ice this week.
Negligible primary volume and meager activity in the secondary pointed to a largely lifeless week. In addition, many market participants had cleared their desks.
Since last Friday, triple-A yields changed little, dropping two basis points at the 10-year section of the curve and just one at the 30-year through Thursday.
Treasury yields, by comparison, outperformed across the curve.
Muni bond indexes mostly fell on the week, reflecting the slight decline in rates. The Bond Buyer’s 20-bond GO index of 20-year general obligation yields declined one basis point this week to 3.94%.
That is its lowest level since June 7, when it was 3.92%.
The 11-bond GO index of higher-grade 20-year GO yields also dropped one basis point this week to 3.73%, which is its lowest level since June 7, when it was 3.71%.
The yield on the U.S. Treasury’s 10-year note increased one basis point this week to 1.60%. But it remained below its 1.62% level from two weeks ago.
The yield on the Treasury’s 30-year bond gained four basis points this week to 2.72%, which is its highest level since June 14, when it was 2.73%.
The tax-exempt market may have been asleep this week, as expected, but stagnating muni yields really haven’t been a new development, said Matt Fabian, a managing director at Municipal Market Advisors.
In general, thin market conditions create an opportunity for more volatility because it’s easier for buying or selling pressure to push the market one way or another.
But that hasn’t been the case, according to Fabian.
“Really, the muni market has been beached since the beginning of May,” he said. “Since the 10-year Treasury dipped below 1.90%, our 10-year has been stuck at about 1.90%. And we really haven’t been able to follow through — it’s just stuck there.”
The 10-year triple-A yield ended Thursday’s session at 1.84%. There’s more risk than reward in buying bonds at current levels, Fabian added, and so investors are hesitant. However, at the same time, he said there is enough reinvestment cash coming from maturing bonds and called bonds that market participants are buying enough to hold levels steady.
“It seems like, until there’s some change of course in monetary policy, or the 10-year Treasury can come up back closer to 1.90%, it’s hard to expect much of a change.”
The revenue bond index, which measures 30-year revenue bond yields, dropped four basis points this week to 4.65%. It is now at its lowest level since Oct. 21, 2010, when it was 4.60%.
The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, increased four basis points this week to 4.43%. That level is the highest weekly average for the yield to maturity since the week ended May 10, when it was 4.48%.