The tax-exempt market ended on a steady note Thursday, extending for another session a flat to firmer tone in the municipal bond market since Sept. 6.
Yields on the Municipal Market Data scale have traded flat or lower in 15 consecutive trading sessions, a reversal from the summer months when the bond market sold off almost consistently since May.
From May 1 to Sept. 5, the 10-year MMD yield increased 138 basis points and the 30-year yield rose 172 basis points. Since Sept. 5, the 10-year yield fell 50 basis points and the 30-year yield dropped 40 basis points.
Light supply this week tightening credit spreads helped keep munis steady to firmer Thursday, despite weaker Treasuries.
“The market feels slow,” a trader in Maryland said. “There’s low supply, a diminutive syndicate calendar, the metaphorical floor the Fed put down after pulling out on tapering. I don’t see how the rally can slow.”
Still, after a week of sliding yields, bond prices look expensive. “It’s getting hard to sell low yields and we are starting to run into huge premiums on the big coupons,” this trader said. “Credit spreads are tight and hot double-A-rated names are getting priced on the scale or through it.”
One New York trader said muni yields were unchanged from Wednesday. “I haven’t seen anything substantial trade as of yet,” this trader said. “With Treasuries backing off a little today, munis might be biased towards unchanged, or even a little softer since we’ve had such a good rally. It’s a good time to pause.”
He said most of the week’s primary deals priced Tuesday and Wednesday, also allowing the new-issue market to take a breath.
In the secondary market, trades compiled by data provider Markit showed a mix of strengthening and weakening.
Yields on Columbus, Ohio, 5s of 2020 and Southern Mississippi Educational Building Corp. 5s of 2038 fell three basis points each to 2.00% and 4.55%, respectively.
Yields on Texas’ Lower Colorado River Authority 5s of 2020 slid two basis points to 2.41% and California 5s of 2029 fell one basis point to 3.63%. Yields on New York 5s of 2023 fell one basis point to 2.97%.
Other trades were weaker. Yields on Massachusetts 4.5s of 2031 and Honolulu 5s of 2036 increased one basis point each to 4.64% and 4.11%, respectively.
On Thursday, yields on the triple-A Municipal Market Data scale ended unchanged. The 10-year and 30-year yields were steady at 2.54% and 4.11%, respectively. The two-year was steady at 0.36% for the fifth session.
Yields on the Municipal Market Advisors scale ended as much as two basis points higher. The 10-year and 30-year yields rose one basis point each to 2.70% and 4.25%, respectively. The two-year was steady at 0.54% for the sixth consecutive trading session.
Treasury yields rose Thursday after four consecutive sessions of firming. The benchmark 10-year yield rose three basis points to 2.65% and the 30-year yield rose four basis points to 3.69%. The two-year was steady at 0.35%.
Over the course of the past week, retail trading activity of under 100 bonds dropped, according to BondDesk Group. Buy trades fell for the week while sell trades were up just slightly from the past week.
Buy trades for the week ending Sept. 25 fell to 76,465 from the past week’s 87,067. It was the second lowest week of buy trades in the past five weeks, just above 68,936 for the week ending Sept. 4.
Sell trades rose to 39,515 from the past week’s 37,713 and was the highest in five weeks. The buy to sell ratio also fell to its lowest in five week, falling to 1.9 from 2.3.
In par value traded, there were $1.975 billion buy trades, down from the previous week’s $2.208 billion and the lowest in five weeks. Par value of sell trades were the highest in five weeks, topping out at $1.092 billion and up from the previous week’s $1.035 billion.
The buy to sell ratio in par value fell to its lowest in five week, sliding to 1.8 from 2.1 the week before.
In economic news Thursday, initial jobless claims fell 5,000 to 305,000 for the week of Sept. 21, coming in lower than the 330,000 expected by economists. The adjusted four-week moving average fell to 308,000, the lowest level since 2007.
“If, as the Labor Department claims, California has caught up with its backlog of filings then the four-week average of claims should be a clean reading,” wrote economists at RDQ Economics. “This average has dropped by 22,500 since the August payroll survey week, which means over the last four weeks 90,000 fewer people filed an initial jobless claim compared to the four weeks running up to the August job survey.”
“In our view, it would appear that employment growth is stronger than suggested by the last two payroll reports and we think this view is supported not only by the claims data but also by the improved assessment of current labor market conditions reported in the Conference Board’s consumer confidence report,” the economists said.