The tax-exempt market finished on a strong note Friday after a quiet week that was shortened by the Fourth of July holiday.
Traders were looking forward to new deals in the primary market to help spur activity and to put to work money from July 1 coupons.
“It was very quiet,” a Los Angeles trader said. “There was not a single deal in California this week. The phone isn’t ringing. There are a couple of trades here and there, but it’s very dead. It’s like a Christmas week in the middle of summer.”
Over the past few weeks, the secondary market has been dead, but new issues seem to be doing well, the trader added. “Secondary is struggling because retail participation is so low because they don’t like these rate levels. But new issues are getting picked up. And with more bad news about the economy every day, retail will hopefully jump back in.”
Munis ended firmer Friday, according to the Municipal Market Data scale. Yields inside seven years were steady while yields outside eight years fell between one and three basis points.
For the week, the 10-year and 30-year yields finished down four basis points each to 1.82% and 3.12%, respectively. The two-year finished steady on Friday at 0.32% for the 25th consecutive session.
Munis followed Treasuries higher after a disappointing jobs report that showed the unemployment rate held at 8.2% in June. The benchmark 10-year yield and the 30-year yield each dropped five basis points to 1.55% and 2.66%. The two-year yield fell two basis points to 0.28%.
In the secondary market Friday, trades compiled by data provider Markit showed mostly firming. Yields on San Francisco Public Utilities Commission 6s of 2040 dropped four basis points to 4.37%.
Yields on New York State Urban Development Corp. 5s of 2018 and Illinois’ Metropolitan Pier and Exposition Authority 0s of 2041 each fell two basis points to 1.46% and 5.36%, respectively. Yields on Hawaii 5s of 2029 and Louisiana 5s of 2017 each fell one basis point to 2.87% and 1.00%.
So far in July, muni-to-Treasury ratios have risen as munis underperformed Treasuries and became comparatively cheaper. The five-year ratio jumped to 120.0% on Friday from 108.2% on June 29. The 10-year ratio rose to 117.4% from 112% at the end of June. The 30-year ratio increased to 117.3% on Friday from 114.5% at the end of last month.
The slope of the yield curve is slightly flatter so far in July. The one- to 30-year slope fell to 292 basis points on Friday from 296 basis points at the end of June. The one- to 10-year slope flattened to 162 basis points from 166 basis points at the end of June.
Muni exchange-traded funds have struggled so far this month compared to their corporate counterparts. The iShares S&P National AMT-Free Municipal Bond ETF — ticker MUB — fell 0.35%. The SPDR Nuveen Barclays Capital Short Term Municipal Bond ETF — ticker SHM — was flat. The PowerShares Insured National Muni Bond ETF — ticker PZA — rose 0.44%.
Muni ETFs underperformed the ProShares Ultra Seven to 10 Year Treasury ETF — ticker UST — which rose 1.47% so far in July.
Muni ETFs mostly fell short of corporate bond ETFs. The iShares iBoxx High Yield Corporate Bond ETF — ticker HYG — rose 0.11% so far this month and the iShares IBoxx Investment Grade Corporate Bond Fund ETF — ticker LQD — increased 0.71%.
Looking to next week, $7.07 billion of municipal bonds are expected to be priced, up from this week’s revised $105.7 million.