Secondary trading data for the shortened holiday week revealed investors were drawn to the long end of the curve as yields firmed.
From Tuesday Oct. 14 through Oct. 17 , the most actively traded revenue and general obligation bonds all had durations on the long end of the curve, according to data provided by Markit. Bonds maturing in 2044 were the most popular, with 226 trades recorded across the top 50 most active securities, according to Markit. 2035 was a far second, with 94 trades recorded.
The shortest dated security was 2027 with 45 trades recorded.
Traders attributed the long-end interest to the week's sell-off in equities that sparked a rally in the Treasury and municipal markets. Yields plunged in both asset classes, with yields on the 10-year treasury bond dipping below 2% on Wednesday.
By market close on Friday, however, treasuries had retraced their gains, ending the week softer than they began. Yields on the 10-year closed Tuesday at 2.21% and ended on Friday a basis point higher at 2.22%. Similarly, yields on the 30-year closed three basis points higher at 2.98%, up from Tuesday's market close of 2.95%.
After a week of tightening in sympathy, municipals weakened on Friday as well. Yields on bonds maturing between 2021 through 2044 softened five and six basis points, while yields on those in the front end between 2017 through 2020 rose three and four basis points, according to the Municipal Market Data triple-A 5% curve. Yields on bonds maturing between 2015 and 2016 were unchanged.
While the market was firming earlier in the week, investors said that they were thrust into the long end of curve to find any kind of yield.
"I thought it was hard [to find yield] before," said a Midwest-based trader. "This environment is even worse though. It's just depressing."
With options in the primary pricing without any yield to be hard, traders said they were looking into the secondary, hoping for opportunities.
"You have to take on long dated risk to get your hand on anything in this market," said a second Midwest-based trader.
The week's primary offerings were priced aggressively and, in some cases, at a discount to the MMD curve, as was the case for DASNY's $1 billion sales tax revenue deal on Wednesday. DASNY's spreads were as low as 17 basis points beneath the MMD curve ahead of its 2026 maturity.
Next week will bring more opportunities for traders in the primary as the calendar holds an expected $7.4 billion of issuance. The expected levels are on track to be the highest volume in four months. Yield may be on the table, as the calendar will be led by the unrated San Joaquin Hills Transportation Corridor Agency, according to data provided by TM3. The authority will bring $1 billion of senior lien toll road refunding bonds and junior lien toll road refunding revenue bonds in a deal that promises to bring risk with the anticipated rewards.
"Lately it's been feeling like we've been hardly getting compensated for the risk we have to take in the markets," said a third Midwest-based trader.
Troubled coast town, Atlantic City, N.J., will tap the market for a $253.27 million deal. The city's parking fee and fund revenue bonds were recently downgraded by Moody's Investor Services to Ba3 from Baa3, the agency highlighting that the city may see its "debt service coverage ratio fall below 1.0 times annual debt service within two years."
Even after the downgrade, traders expect the deal to be one of the week's most popular as investors desperate for yield take a gamble on the distressed casino beach town.
"[Atlantic City's] subscription rates are going to be amazing to watch," said the second Midwest-based traders. "Even though they're been having one of their roughest years, everyone's going to put an order in. Only in this environment could you see that."
