NEW YORK – The tax-exempt market ended on a stronger note as munis strengthened on Friday after weakening all week.
“It was a busy morning,” a New York trader said on Friday. “But it’s dead this afternoon.”
A trader in Texas said there were some trades in the secondary market. “Our market was mostly unchanged, although I did hit some down bids,” he said. “But it was a good sign that there was a bid to hit.”
Looking to next week, “traders are getting real nervous and very testy,” the New York trader added. “The coming next two weeks will set the tone for the rest of the year and everyone’s on edge.”
And indeed, traders are looking to next week – the largest week of new issuance so far this year – to get a sense of how strong demand really is for munis. The tax-exempt market can expect $7.2 billion in new deals, up from this week’s revised $4.1 billion. In negotiated deals, the market can expect $5.3 billion, up from this week’s revised $3.1 billion. On the competitive calendar, $1.9 billion is expected, up from this week’s revised $1.1 billion.
On Friday, munis ended firmer, according to the Municipal Market Data scale. Yields inside eight years were steady while the nine- to 11-year yields fell one basis point. Yields between the 12-year and 21-year were steady while yields outside 20 years fell one and two basis points.
The two-year yield ended steady at 0.26%, its record low as recorded by MMD on Feb. 16. The 10-year yield fell one basis point to 1.87% while the 30-year yield fell two basis points to 3.25%.
The Treasury curve flattened Friday. The two-year yield rose one basis point to 0.32% while the 30-year yield fell two basis points to 3.11%. The benchmark 10-year yield was steady at 1.99%.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming over the week.
A dealer sold to a customer Golden State Tobacco Securitization Corp. 5.125s of 2047 at 7.79%, 11 basis points lower than where they traded the week prior.
A dealer sold to a customer Arlington County, Va., 5s of 2022 at 1.90%, eight basis points lower than where they traded earlier in the week.
Another dealer sold to a customer California 7.6s of 2040 at 5.27%, six basis points lower than where they traded earlier in the week.
A dealer sold to a customer Ohio’s Buckeye Tobacco Settlement Financing Authority 5.875s of 2030 at 8.48%, two basis points lower than were they traded earlier in the week.
Up until Friday, munis were weaker and muni-to-Treasury ratios rose as munis underperformed Treasuries and became cheaper. Since munis started weakening on Feb. 17, the five-year ratio has risen to 77.3% this week from 75.6%. The 10-year ratio jumped to 94.9% from 91.5%. The 30-year muni-to-Treasury ratio increased to 104.5% from 102.5%.
The 10- to 30-year slope of the curve fell slightly to 139 basis points at the end of the week from 140 basis points the week prior.
Spreads have also tightened across the credit spectrum. The spreads on the two-year triple-A to single-A munis tightened to 44 basis points at the end of the week from 56 basis points at the beginning of the year as investors reached further out on the curve for yield. The spread on the 10-year triple-A to single-A munis fell to 89 basis points from 96 basis points. Similarly, the 30-year triple-A to single-A spread compressed to 83 basis points from 89 basis points at the beginning of the year.