The municipal bond market defied a softer Treasury market Thursday, extending its Federal Reserve rally into a second session.
Following a drop in yields of as much as 10 basis points Wednesday after the Fed announced no changes to its $85 billion-a-month bond purchasing program, muni yields dropped another eight basis points Thursday.
Munis initially followed the lead of Treasuries. The benchmark 10-year Treasury yield dropped 17 basis points Wednesday afternoon. On Thursday, Treasuries pared those gains.
“Munis are in good shape,” an Ohio trader said, adding the market feels about five basis points stronger. “Coming in this morning we needed to play a little catch-up from the late afternoon bid that Treasuries caught Wednesday, and we’ve been able to hold firm at those levels even with Treasuries giving back a few basis points Thursday.”
Other traders agreed the market was trading off of Wednesday’s Fed news. “Munis are rallying,” a New York trader said. “Dealers are all bumping up their offerings. It’s just a continued, delayed reaction to Wednesday.”
“This market is impossible to get ahead of,” a Chicago trader said. “I can’t buy anything. It’s a joke, but then ICI comes out with $2.7 billion in outflows,” he said, referring to outflows from long-term municipal bond funds for the week ending Sept. 11. “I think it’s a flash in the pan personally, but I’m trying to play the game while I can. Make fast money selling into this fervor.”
In the secondary market, trades compiled by data provider Markit showed strengthening.
Yields on New Jersey Tobacco Settlement Financing Corp. 4.625s of 2026 and Florida’s Jacksonville Electric Authority 3.5s of 2023 fell 10 basis points each to 5.82% and 3.36%, respectively.
Yields on New York’s Liberty Development Corp. 5.25s of 2035 slid nine basis points to 4.82%.Yields on California 5s of 2042 and Nacogdoches County, Texas, Hospital District 5s of 2043 fell four basis points each to 4.75% and 5.33%, respectively.
Yields on Columbus, Ohio, 5s of 2033 dropped three basis points to 4.09% and West Virginia State Hospital Finance Authority 5.5s of 2044 slid two basis points to 5.41%.
Yields on individual bonds on benchmark scales Thursday were lower, despite muni ETFs showing mostly losses.
The iShares S&P National AMT-Free Municipal Bond ETF — ticker MUB — fell 0.09% for the day while the SPDR Nuveen Barclays Capital Short Term Municipal Bond ETF — ticker SHM — fell 0.04%.
The PowerShares Insured National Muni Bond ETF — ticker PZA — also fell 0.37%.
Still, the Market Vectors High Yield Municipal Index ETF — ticker HYD — rose 0.45%. and Market Vectors Long Municipal Index ETF — ticker MLN — recorded a positive 0.34% for the day.
Muni ETFs outperformed the ProShares Ultra Seven to 10 Year Treasury ETF — ticker UST — which fell 0.51% for the day.
On Thursday, yields on the triple-A Municipal Market Data scale ended as much as seven basis points lower. The 10-year and 30-year yields fell six basis points each to 2.61% and 4.23%, respectively. The two-year yield fell two basis points to 0.38%.
Yields on the Municipal Market Advisors scale ended as much as eight basis points lower. The 10-year and 30-year yields slid six basis points each to 2.77% and 4.31%, respectively. The two-year yield fell one basis point to 0.54% after trading steady at 0.55% for 24 consecutive sessions.
Treasuries pared some of Wednesday’s gains to end weaker. The benchmark 10-year yield rose seven basis points to 2.75% and the 30-year yield increased five basis points to 3.80%. The two-year yield rose one basis point to 0.34%.
While yields fell this week, signaling more buying demand, the number of buy trades fell while the number of sell trades rose in retail trades of under 100 bonds, according to BondDesk Group.
For the week ending Sept. 18, the number of buy trades fell to 87,102 from the previous week’s 90,502. This week saw the second lowest amount of buy trades in the past five weeks, edging out the 68,942 buy trades during the week of Sept. 4.
Sell trades rose to 37,688 for the week ending Sept. 18, up from the past week’s 37,120, coming in at the third highest in the past five weeks. It was also the second consecutive week that sell trades rose.
The buy-to-sell ratio fell to 2.3 from 2.4 the past week and was the lowest in the past five weeks.
In par value, investor buy trades also fell to $2.208 billion from $2.255 billion for the week ending Sept. 11. It was the second lowest par value traded in the past five weeks, edging out $1.718 billion traded the week ending Sept. 4.
Par value of sell trades rose to $1.034 billion from $1.001 billion the previous week and was the second consecutive week that sell trades increased. Of the past five weeks, par value of sell trades came in the second highest, falling short of $1.039 billion traded the week ending Aug. 28.
The buy-to-sell ratio slid to 2.1 from 2.3 the previous week and was the lowest in five weeks.
