The tax-exempt market struggled to gain footing Wednesday as most market participants said trading was too slow to move the market.
Wednesday was the first full day of trading this week after a full close Tuesday and an early close Monday due to Hurricane Sandy.
"It's a pretty easy read — there is nothing going on," a New Jersey trader said. "It's very slow. No one is in the office and no deals priced. And the rest of the week will be the same. As far as I can tell most deals are pushed into next week.
Other traders agreed the market felt unusually calm as many participants in the Northeast were stranded without power and transportation.
"Munis are flat," a New York trader said. "And I would imagine most deals are postponed."
In the primary market, most negotiated deals were postponed due to Hurricane Sandy.
In the competitive market, California's Marin Community College District sold $92.44 million of general obligation bonds in two parts – a $47 million deal followed by a $45.44 million sale. The bonds are rated Aa1 by Moody's Investors Service and AA by Standard & Poor's. Pricing details were not available by press time.
On Wednesday, the Municipal Market Data scale ended flat. The 10-year muni yield and the 30-year yield were steady at 1.72% and 2.82%, respectively. The two-year remained at 0.30% for the 25th straight trading session.
Treasuries rallied Wednesday. The benchmark 10-year yield dropped three basis points to 1.69% while the 30-year yield fell one basis point to 2.87%. The two-year was steady at 0.29%.
Over the course of October, muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became relatively more expensive.
The five-year ratio fell to 93.1% on Wednesday from 100% on Oct. 1. The 10-year ratio dropped to 101.8% from 104.9% at the beginning of the month. The 30-year ratio fell to 98.3% from 101.1% at the start of the month.
And that trend has continued all year on the short- and long-ends. The five-year muni yield to Treasury yield ratio dropped from 98.9% on Jan. 3 while the 30-year ratio plummeted from 119.4%.
To be sure, ratios in the belly of the curve have risen as munis underperformed Treasuries and became relatively cheaper since the beginning of the year. The 10-year ratio has jumped from 96.4%, where it started the year.
Throughout October, credit spreads have compressed as yield-hungry investors continue to move down the credit scale in search for yield. The five-year triple-A to single-A spread has compressed to 53 basis points at the end of October from 58 basis points at the start of the month. Similarly, the spread has compressed from 82 basis points where it started the year.
The 10-year triple-A to single-A spreads compressed to 70 basis points at the end of the month from 74 basis points at the beginning of October. It has compressed from 96 basis points where it started the year.
The 30-year triple-A to single-A spread compressed to 69 basis points from 73 basis points at the beginning of October. It has fallen dramatically from where it started the year at 89 basis points.
Similarly, the slope of the yield curve has flattened as investors extend duration of bonds in search of yield. The one- to 30-year slope fell to 262 basis points at the end of October from 265 basis points at the beginning of the month.
The one- to 10-year slope has steepened as investors sold bonds in the belly of the curve throughout the month. The slope steepened to 152 basis points from 150 basis points at the beginning of the month.
As has been the case for most of the year, high yield municipal bonds continue to outperform the rest of the market. The Standard & Poor's Municipal Bond High Yield Index has returned 15.68% year-to-date and 1.29% month-to-date. That compares to the Standard & Poor's Municipal Bond Investment Grade Index, which returned 6.53% year-to-date and 0.26% month-to-date.
High yield sectors have also largely outperformed the general market. The Standard & Poor's Municipal Bond Tobacco Index returned 20.37% year-to-date and 3.22% month-to-date.
Similarly, the Standard & Poor's Municipal Bond Health Care Index returned 10.03% year-to-date and 0.49% month-to-date. The Standard & Poor's Municipal Bond Housing Index returned 6.59% year-to-date and 0.33% month-to-date.
On a national level, revenue bonds continue to outperform general obligation bonds this year. The Standard & Poor's Municipal Bond Revenue Index returned 8.26% year-to-date and 0.44% month-to-date. That compares to the Standard & Poor's Municipal Bond General Obligation Index, which returned 5.71% year-to-date and 0.17% month-to-date.
Local GO bonds have outperformed state GOs. The Standard & Poor's Municipal Bond Local General Obligation Index returned 6.72% year-to-date and 0.23% month-to-date while the Standard & Poor's Municipal Bond State General Obligation Index returned 4.97% year-to-date and 0.13% month-to-date.