NEW YORK – After a wild week that took the tax-exempt market up and down, munis ended on firmer footing Friday as a global risk-off trade forced bond yields lower.
Overall for the week, municipal bond yields were virtually unchanged with the exception of the long-end which ended slightly lower.
“We are ending the week on a firm tone,” a Chicago trader said. “The market was really strong at the beginning of the week. We labored in the middle, but are closing on a positive note.”
He added that by mid-week, the bid side had dried up “It’s been a weird week,” he said. “We had a couple of runs and then it was like, ‘where’s the bid? Where’s the beef?’ But now it looks like we are feeling a little bit better and getting more people engaged.”
He added this week and next week are seeing fairly decent sized calendar, which keeps traders focused on the new issue market.
Some of the weakening, however, can be attributed to tax time. “Traditionally tax time is a slow time,” he said. “And people think which assets do you need to pay taxes? But then it starts up again in May. June and July are also good rollover months.”
Another trader agreed the tone of the market felt much stronger Friday. “Munis are stronger because of Treasuries,” a New York trader said.
Munis followed Treasuries higher Friday, according to the Municipal Market Data scale. The one-year muni yield fell two basis points while yields between two and six years were steady. Outside seven years, yields fell between one and three basis points.
On Friday, the two-year yield closed steady at 0.33% for the fifth consecutive trading session. The 10-year yield and the 30-year yield each dropped three basis points to 1.97% and 3.32%.
Treasuries were buoyed by a risk-off trade that hit global markets Friday. The two-year yield fell two basis points to 0.27%. The benchmark 10-year yield dropped seven basis points to 1.99% while the 30-year yield plummeted nine basis points to 3.22%.
In the secondary market on Friday, data compiled by Markit showed munis were stronger. Of a sample of eight CUSIP numbers, seven of the bonds were stronger, with yields falling between one and six basis points.
Yields on Pennsylvania State Turnpike Commission 5s of 2037 fell three basis points to 4.39% while yields on Puerto Rico Commonwealth 5.5s of 2039 dropped two basis points to 5.15%.
Yields on California Health facilities Financing Authority 5s of 2033 fell five basis points to 3.84% while yields on New York 5s of 2030 plunged six basis points to 3.20%.
Over the course of this week, muni-to-Treasury ratios increased as munis underperformed Treasuries and became comparatively cheaper. The five-year muni yield to Treasury yield rose to 97.8% from 96% at the end of last week. The 30-year ratio jumped to 104.4% from 103%. The 10-year ratio was virtually unchanged, falling to 97.6% from 97.7% last week.
And while the slope of the yield curve has flattened to 317 basis points from 324 basis points the week before, the 10- to 30-year slope has steepened to 135 basis points from 130 basis points at the end of last week.
Looking to next week’s primary market, $7.45 billion is expected to be issued, up from this week’s revised $6.43 billion. On the negotiated calendar, $5.13 billion is expected, up from this week’s revised $4.96 billion. In competitive offerings, $2.32 billion is expected to come to market, up from this week’s revised $1.47 billion.