Too little trading and too few participants made a clear picture of the municipal market difficult to draw Friday.
Still, muni and Treasury yields maintained the upward trajectory they adopted early last week. The secondary market was quiet throughout the session, with many traders already on holiday, a trader in Los Angeles said.
“We gave up a basis point, or two,” he said. “And if there were more activity, it might have been worse than that. With as little activity as there was, with as few participants as there were, it was hard to get a real feel for what the market was really worth today. It was a tough day to figure out what’s going on.”
Muni yields rose at the longer end of the curve throughout Friday, according to the Municipal Market Data scale. Tax-exempts maturing between 2012 and 2017 were steady. Yields for maturities between 2018 and 2041 jumped a basis point higher.
Both the benchmark 10- and 30-year muni yields inched up one basis point to 2.76% and 4.36%, respectively. In one week, both yields have risen 13 basis points. The two-year yield stood, yet again, at 0.42%, holding for the 15th straight session.
Treasury yields, which pushed higher most of the week, started the Friday morning a tad lower. By noon, they reversed and continued on the week’s upward path. The 10-year yield climbed three basis points to 3.20%. The two-year yield skipped up two basis points to 0.49%. The 30-year yield increased two basis points to 4.40%.
Treasury yields have risen noticeably over last week. But they still have some ways to go before they even reach calendar-year averages, let alone calendar-year highs, MMD numbers show. Average yields for the first half of 2011 for two-year, 10-year, and 30-year Treasury yields stand at 0.62%, 3.31%, and 4.45%, respectively.
There far fewer deals slated for the holiday-shortened week. Issuers expect to sell an estimated $1.3 billion of municipal bonds this week, against a revised whopping $8.2 billion that was sold last week. Last week’s revised number came in far higher than the original estimated figure of $5.62 billion.
As this week is shorter, supply should be manageable, the trader said. “But if there’s overhang from this week’s supply, it’s going to get in the way,” he added.
Even though issuance has been low compared to years past over the same period — particularly against last year’s numbers — the market demonstrated some difficulty with absorbing the large boost in supply when it finally arrived last week. Still, there were too many factors muddying the picture last week to say with conviction that the market cannot handle supply when it hits, the trader added.
“[Last week’s supply] was a little more difficult to handle, given the fact that the Treasury market was working against us,” he said. “But I’m not convinced yet that this is the supply surge that everyone was concerned about a few months ago.”
