The municipal bond market ended firmer on Thursday as fixed-income assets traded higher following several days of losses.
Munis were stronger as the week's largest deals were priced.
In the primary market, Goldman, Sachs & Co. priced and repriced $1.3 billion of New York's Triborough Bridge and Tunnel Authority — known formally as MTA Bridges and Tunnels — general revenue refunding bonds, following a retail order period Wednesday. The bonds are rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's and Fitch Ratings.
Yields ranged from 0.27% with a 2% coupon in 2013 to 3.23% with a 4% coupon in 2032. The bonds are callable at par in 2022. Yields were lowered as much as six basis points from preliminary pricing.
In the competitive market, Wells Fargo Securities won the bid for $307.7 million of Missouri Board of Public Buildings special obligation refunding bonds, rated Aa1 by Moody's and AA-plus by Standard & Poor's and Fitch.
Yields ranged from 1.03% with a 5% coupon in 2018 to 2.80% with a 3% coupon in 2026. Bonds maturing between 2014 and 2017, in 2027, and in 2028 were not formally re-offered. The bonds are callable at par in 2020.
Outside the primary, traders said the market was busy. "We're doing work today," a New York trader said. "Munis are up again."
In the morning, traders noted the market was showing signs of summer doldrums. "It's lackluster today," a Chicago trader said. "High-grades are trading on or near the curve, but everything else is complacent. There are not a lot of people paying attention. Seems like a really quiet August summer day."
Munis ended steady to firmer Thursday, according to the Municipal Market Data scale. Yields inside 10 years were steady, while yields outside 11 years fell one basis point.
The 10-year tax-exempt yield held steady at 1.66% for the fourth consecutive session, closing above its record low of 1.60% set July 26. The two-year was steady at 0.29% for the sixth consecutive session. The 30-year muni yield fell one basis point to 2.84%, finishing five basis points above its record low of 2.79% set July 25.
Treasuries were stronger after the Federal Reserve and the European Central Bank each failed to take any immediate action to spur the American and European economies, respectively. The benchmark 10-year yield and the 30-year yield dropped five basis points each to 1.48% and 2.55%. The two-year was steady at 0.24%.
In the secondary market, trades compiled by data provider Markit showed mostly firming. Yields on Pennsylvania Turnpike Commission 5s of 2042 plunged eight basis points to 3.75% while Iowa Park, Texas, Independent School District 3.375s of 2037 fell two basis points to 3.50%.
Yields on University of California Regents 3.5s of 2037 and Utah 5s of 2022 each dropped one basis point to 3.67% and 1.65%, respectively.
A few trades were weaker. Yields on Dormitory Authority of the State of New York 5.051s of 2027 and Denton, Texas, 5s of 2021 rose one basis point each to 3.37% and 1.83%, respectively.
So far this week, ratios have risen as munis underperformed and became relatively cheaper. The five-year ratio increased to 106.6% on Thursday from 98.5% at the end of last week. The 10-year ratio increased to 112.2% from 105.8% last Friday. The 30-year ratio jumped to 111.4% on Thursday from 107.6% at the end of last week.
The slope of the yield curve has remained mostly steady this week as supply and demand has been matched. The one- to 30-year yield held flat at 265 basis points on Thursday from the end of last week. The one- to 10-year yield increased slightly to 147 basis points from 145 basis points at the end of last week.
Credit spreads have had mixed results this week, with some investors holding positions and others moving down the credit scale in search of yield.
The five-year triple-A to single-A spread remained at 61 basis points on Thursday from the end of last week while the 30-year spread finished flat at 73 basis points.
The 10-year triple-A to single-A spread compressed to 80 basis points from 83 basis points at the end of last week.
With yields near their all-time record lows, traders are looking at individual spots on the curve to find value.
Analysts at Trident Municipal Research said there are spots on the curve that still capture the right balance of moving out on the curve, given duration risk and tendency for greater volatility on the short end.
"Longer horizon investors should focus on 2018, 2021, and 2023 maturities on the front end of the curve and avoid extending past 2036 on the long end," the analysts wrote. "We see this as a result of the reach for yield flattening the curve for the very longest maturities — 25-year and 30-year — as investors try to capture every last basis point of yield."
In terms of yields relative to Treasuries, the analysts said the short and intermediate part of the curve offers the greatest value.
"Again, this is not surprising given the extent to which the reach for yield has flattened the curve," they said.
And while there may be spots on the curve that are still attractive, analysts at Citi note a majority of the retail demand, measured by the Municipal Securities Rulemaking Board odd-lot flow trend, has dropped off given this record low rate shock.
"It seems clear that direct retail buyers have been pushed back into rate shock by the most recent round of drops in yield, since the end of June or so," wrote George Friedlander, muni strategist at Citi, adding net purchases less than $1 million are running roughly 25% below the 200-day moving average.