NEW YORK — A quiet day of trading Friday closed out the pre-holiday week for the municipal bond market. Few traders were around to work the phones. And those who were weren’t willing to cut offerings.
“The day was dead from the start,” a trader in California said. “[Treasury prices] were down. There’s no inventory in the municipal market.”
The market finished the week with a slightly weaker feel on the long end, according to the Municipal Market Data scale. Muni yields were steady out to 24 years. Beyond that, they were one basis point higher.
Muni yields ended Friday’s session steady, while weaker at the far end of the curve. The benchmark 10-year yield held at a record low 1.91%, as recorded by MMD. For the week, the 10-year firmed two basis points.
The two-year yield closed flat at 0.36% for a 13th consecutive session. The 30-year muni yield inched up one basis point on the day, as well as the week, to 3.63%.
“There was very little that traded, and if anything did, it was kind of at yesterday’s prices,” the trader said. “Although the generic scales were off by a basis point, it’s really hard to prove it.”
Treasury yields as they have for most of the week, continued to weaken throughout Friday’s session. The benchmark 10-year yield climbed seven basis points on the day, and 18 basis points on the week, to 2.03%.
The two-year yield inched up one basis point, six basis points for the week, to 0.29%. The 30-year yield jumped seven basis points to 3.06%. For the week, it vaulted 21 basis points.
“The firming muni market of [Thursday] was slowed by lack of participants and the negative backdrop of weakening Treasuries,” MMD analyst Randy Smolik wrote in a research post.
But January reinvestment tends to ignite a rally, he added. And it would appear many market participants on Friday were willing to pull offerings ahead of the holidays to have something on the shelf for the new year.
Potential primary market volume for the coming week is estimated to total just $5.9 million, against $3.97 billion for this week. There are also a few competitive note sales worth a total of about $21 million scheduled for the week.
There are no muni bond sales scheduled for the negotiated side of the market next week. This week saw a revised $3.43 billion sold.
All of next week’s bond action will center on three deals in the competitive space, which total $5.9 million. That compares with $537.4 million this week.
Given the season, the paltry amount of issuance should come as no surprise; volumes are expected to be particularly sparse these next two weeks.
There might well be demand in January, MMD’s Smolik added. “December reinvestment outstripped tax-exempt issuance and investors will feel pressure to buy with January expected to be another hefty reinvestment month,” he wrote.
And that should create a markedly different picture for the muni market when compared with that of the dawn of this year. “Meredith Whitney’s dire prediction of hundreds of billions in muni defaults did not come to fruition and will not plague the start of a new year as was the case last January,” Smolik wrote.
The approaching holidays haven’t kept investors from putting money into municipal bond mutual funds. In the week ended Dec. 21, muni bond funds saw roughly $764 million of inflows from funds that report their flows weekly, according to Lipper FMI.
In the week ended Dec. 14, there were net inflows of almost $460 million. The numbers mark the third straight week of strong inflows.
High-yield muni funds also saw a third straight week of inflows after two straight weeks of outflows. Funds that report weekly saw inflows of $72.4 million, Lipper said. The previous week, high-yield funds reported inflows of $90.5 million.
In economic news, the Commerce Department reported Friday that new orders for manufactured durable goods leapt $7.5 billion, or 3.8%, to $207.0 billion. It marked the largest gain since July, when new orders increased 4.2%. New orders were unchanged in October.
Excluding transportation, new orders climbed 0.3%. Excluding defense, they rose 3.7%.
Economists polled by Thomson Reuters had estimated a 2.0% increase in new orders for durable goods. They had projected that durable goods excluding transportation would gain 0.4% in November.
