The municipal market treaded water Friday, stifled by an otherwise underwhelming amount of activity in the secondary.
Tax-exempt yields mostly danced in place throughout the day’s session, while Treasury yields backtracked Friday from a noticeable backup in yields this week. The day was marked by sluggish trading in tax-exempts, a trader in California said.
“There wasn’t anything that really was driving the market,” he said. “You’ve had Treasuries up and down during the week. You had a good day today, but we’ve had a couple of rough days with Treasuries. We’ve probably outperformed.
“I did hear some decent trades on taxables yesterday. But there wasn’t much follow-though today, because there just wasn’t enough activity.”
Looking closer at the secondary market, activity picked up on the bid side as the day’s trading session crossed into the afternoon, a trader in Chicago said.
The secondary market started the week with modest activity, traders reported, but soon gave way to interest in the primary. By Thursday, wider bid-ask spreads slowed activity on all but specific high-quality block trades. By Friday afternoon, the spread had narrowed, the Chicago trader said.
“Bonds are getting done on the bid side of the market,” he said. “There aren’t many people taking things on the offer side. The bid side is coming in; it was a little wider yesterday. Now, it’s a little tighter.”
Primary market supply is expected to weigh in at $7.64 billion for the coming week. That compares with a revised $7.44 billion last week. The number falls roughly in line with the amount the market has been seeing lately, and is something industry watchers say should be easily absorbed.
A taxable deal for $1.5 billion for the Catholic Health Initiative, in Colorado, is expected to lead all deals on the calendar. A competitive deal for $550 million in California general obligation refunding bonds also stands out.
But the month has not been as heavy in volume as it has been historically. And because investors sit on the sidelines with full pockets of cash in need of allocation, most deals that arrive are bought quickly.
“Generally, October has more supply than buyers,” the Chicago trader said. “But right now, it’s still enjoying its good fortune.”
Muni bond fund flows gave the market a boost and yet another strong signal of demand for the week ended Oct. 17. Weekly reporting muni bond funds saw the 27th consecutive week of inflows, taking in $621 million.
Tax-exempt yields ended the week unchanged, according to the Municipal Market Data scale read. The benchmark triple-A 10-year yield closed flat at 1.74%.
The 30-year yield held steady at 2.86%. The two-year remained at 0.30% for the 18th consecutive trading session.
Treasuries yields mostly closed out Friday’s session stronger, looking to end the otherwise weak week on a downward note. The benchmark 10-year yield dropped seven basis points to 1.77%.
The 30-year yield plummeted eight basis points to 2.94%. The two-year yield held at 0.30%.
In economic news, the National Association of Realtors announced Friday that existing home sales fell 1.7% in September to a seasonally adjusted 4.75 million-unit rate. That followed a revised 4.83 million rate in August.
The NAR originally reported the August sales rate as a 4.82 million-unit pace. Economists surveyed by Thomson Reuters anticipated September’s 4.75 million rate.
The rate represents an 11% jump from that of September 2011. The sales rate has now landed north of previous-year levels for 15 consecutive months, according to NAR chief economist Lawrence Yun.