NEW YORK – The tax-exempt market struggled throughout the week under the weight of heavy new issuance as yields jumped double digits.
Munis lower ahead of an even bigger calendar expected next week.
“Munis are weaker,” a New York trader said. “There is $14 billion in supply. Munis are not stronger. I think Municipal Market Data is looking at a different market than the rest of us.”
Other traders noted munis seemed weaker. “Munis are definitely sloppy and there is a lot of chatter about a few big deals next week,” a second New York trader said. “Only the first few years on the curve are hanging in.”
He added that the market is pretty cheap right now after the sell-off this week. “If the market can get through this supply I wouldn't be surprised if we snapped back a week from now.”
However, munis were slightly stronger Friday, according to the MMD scale, reversing four days of losses. Yields inside 24 years were steady while yields outside 25 years fell one basis point.
On Friday, the 10-year yield closed flat at 1.90% while the 30-year yield fell one basis point to 3.18%. The two-year was steady at 0.32% for the sixth consecutive trading session.
Overall for the week, the 10-year yield jumped 15 basis points, finishing 23 basis points above its record low of 1.67% set Jan 18. The 30-year yield finished 14 basis points off its record low of 3.04% set on June 1.
Treasuries were mixed Friday. The benchmark 10-year yield fell one basis point to 1.64% while the 30-year yield rose one basis point to 2.77%.
Throughout the week, muni-to-Treasury ratios fell as munis outperformed Treasuries and became relatively more expensive. Munis weakened, but not as much as their taxable counterparts.
The two-year muni yield to Treasury yield ratio fell to 114.3% on Friday from 123.1% a week prior. The 10-year ratio dropped to 115.9% from 119.9% the week before. The 30-year ratio fell to 114.8% on Friday from 120.6% at the end of the previous week.
The slope of the yield curve rose this week as investors traded in longer-duration bonds for shorter maturities. The one- to 30-year slope of the curve grew widened to 298 basis points from 284 basis points the week before. The one- to 10-year portion of the curve also widened to 170 basis points from 155 basis points the week prior.
Looking to next week, over $12 billion is expected to be priced, up from this week’s revised $6.35 billion. On the negotiated calendar, $10.96 billion is expected to come to market, up from this week’s revised $4.52 billion. In competitive deals, $1.08 billion is expected to be sold, down from this week’s revised $1.83 billion.