NEW YORK – The tax-exempt market strengthened for the third consecutive trading session Friday, wrapping up a mixed week that saw weaker munis in the beginning and a rally to finish. Deals that came in the latter part of the week were received much better than deals that were priced earlier.
“We didn’t have much exposure to the big issues this week, but it did seem like everything firmed up a bit moving forward,” a New York trader said. “Everyone seems to be banking on the equity markets and confidence on a macro level to gauge their interest in munis and other flight-to-quality investments. This should be interesting heading into next week.”
“Munis are all over the place” recently, a Chicago trader said. “I can’t sell them and now I can’t buy them. Welcome to munis.”
Munis ended stronger Friday, capping a tumultuous weak. In the beginning of the week, the 10-year yield rose seven basis points while the 30-year yield rose three basis points. Once munis started climbing higher on Wednesday, the 10-year yield fell 16 basis points while the 30-year yield ended down seven basis points.
On Friday, the two-year yield finished steady at 0.36%. The 10-year yield plummeted eight basis points to 2.17% while the 30-year yield fell two basis points to 3.40%.
Treasuries were stronger Friday. The two-year yield fell two basis points to 0.36%. The benchmark 10-year yield dropped four basis points to 2.24% while the 30-year yield dropped five basis points to 3.32%.
On Friday, munis showed strengthening throughout the day, according to data compiled by Markit. Of a sample of 10 CUSIPS, eight showed firming as yields fell across the curve.
“Munis have been stronger the past couple of days whereas what we saw in the last two weeks was munis widening out and getting weaker,” a Markit analyst said. We were at all time lows and couldn’t get lower. That had to be traced back. But now we are retracing that.”
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showing firming over the last week.
A customer bought from a dealer Public Utilities Commission of the City and County of San Francisco 6s of 2040 at 4.75%, nine basis points lower than where they traded earlier in the week.
A customer bought from a dealer City and County of Broomfield, Colo., Water Activity Enterprise 4s of 2019 at 2.58%, five basis points lower than where they traded earlier in the week.
A customer sold to a dealer New York Liberty Development Corp. 5s of 2043 at 4.42%, four basis points lower than where they traded earlier in the week.
A customer sold to a dealer Puerto Rico 5s of 2035 at 4.78%, two basis points lower than where they traded earlier in the week.
Over the last week, muni-to-Treasury ratios rose as munis underperformed Treasuries and become comparatively cheaper. The five-year muni-to-Treasury ratio jumped to 92.7% from 84.7% the week prior. The 10-year ratio rose slightly to 99.6% from 98.7%. The 30-year ratio increased to 102.1% from 101.2% the week prior.
The slope of the curve fell slightly to 117 basis points from 118 basis points the week before. The slope collapsed to a 12-month low of 114 basis points mid-week before widening back out.
Looking to next week, the tax-exempt market can expect $3.36 billion, down from this week’s revised $5.53 billion. In negotiated deals, $2.80 billion is expected to come to market, down from this week’s revised $4.24 billion. On the competitive calendar, $557.9 million is expected, down from this week’s revised $1.29 billion.