Long munis posted incremental gains Friday for a fourth day as some investors shrugged off media reports indicating that policymakers are trying to devise a way for states to file for bankruptcy to snap up some bargains.
Traders said tax-exempt yields were firmer by three to five basis points on the long end and mostly flat in the shorter maturities.
“We’re firmer out long, pretty much picking up where we’ve left off the last couple days,” a trader in New York said. “We’re pretty well unchanged inside of 20 years, and incrementally firmer as you get longer. At most, we’re three or four basis points better.”
The Municipal Market Data triple-A 10-year scale was unchanged Friday at 3.42%, the 20-year scale declined five basis points to 4.74%, and the scale for 30-year bonds dropped five basis points to 4.90%.
Friday’s triple-A muni scale in 10 years was at 100.3% of comparable Treasuries and 30-year munis were at 107.2%, according to MMD.
Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 114.2% of the comparable London Interbank Offered Rate.
“Earlier in the week, municipals looked extremely cheap versus Treasuries [and] versus corporates, and we did get crossover buyers who purchased quite a bit of municipals at the long end,” said Ron Schwartz, who manages the $1.14 billion Investment Grade Tax-Exempt Bond fund for RidgeWorth Investments.
“You have sophisticated taxable fixed-income buyers looking at our market at this point in time who understand the credit risk and think there’s value in the municipal market. That’s probably going to be the trend in the short term.”
Schwartz pointed to the $450 million New York City Municipal Water Finance Authority deal that priced earlier this week. The entire deal was long term, coming on the heels of a 30-year triple-A municipal selling off of more than 130 basis points, and was reportedly four times oversubscribed.
“It’s just a matter of where and what the levels are going to be,” Schwartz said.
Treasuries were slightly weaker Friday. The benchmark 10-year note finished at 3.41% after opening at 3.45%. The 30-year bond finished at 4.57% after opening at 4.60%. The two-year note finished at 0.62% after opening at 0.63%.
The tax-exempt market had no tangible reaction to news reports that Washington policymakers may consider allowing state governments to file for bankruptcy to deal with financial issues.
“It’s not something I heard anyone talking about today,” a trader in Los Angeles said. “It’s such a radical notion — unconstitutional even, since states are considered sovereign — that I don’t think you’ll see anyone really take it to heart unless it looks like it has the potential to go somewhere.”
Despite this, headline risk continues to chase people from state and local government debt funds, as muni bond mutual funds that report their figures weekly posted an outflow of $4 billion during the week ended Jan. 19, according to Lipper FMI. That new mark beats the old record of $3.1 billion, set the week ended Nov. 17, by 29%.
Trades reported Friday by the Municipal Securities Rulemaking Board showed some gains. Bonds from an interdealer trade of Washington state 5s of 2029 yielded 4.88%, down one basis point from where they traded Thursday.
A dealer sold to a customer New York state 5s of 2034 at 5.32%, down three basis points from where they traded Thursday. Bonds from an interdealer trade of taxable California Build America Bond 7.7s of 2030 yielded 7.40%, down three basis points from where they traded Thursday.