NEW YORK – The tax-exempt market was stronger for the fourth consecutive trading session as market participants turned to the secondary for direction after limited primary issuance.

Activity picked up in the afternoon following a slow morning after what was expected to be the largest deal in the market was downsized by a third.

“It’s busy for a Monday, although that’s not saying much,” a New York trader said. He added while primary supply is down this week, there is still plenty of supply left over from the past few weeks which is keeping dealers busy.

The afternoon picked up from a quiet morning. “It seems to be very quiet this morning,” a second New York trader said. “There are not a lot of new issues this week and not a lot out for bid for the moment. Bonds seem to be trading in line where they traded late Friday.”

Munis were stronger Monday, according to the Municipal Market Data scale. Yields inside five years were steady while the six- to seven-year yields fell one basis point. The eight- to 12-year yields dropped two to three basis points while yields outside 13 years were steady to one basis point lower.

On Monday, the two-year yield finished steady at 0.36% while the 30-year yield closed flat at 3.40%. The 10-year yield dropped three basis points to 2.14%.

After weakening in the morning, Treasuries erased the losses throughout the day and closed steady from Friday’s levels. The two-year closed flat at 0.36% while the benchmark 10-year yield was steady at 2.24%. The 30-year was steady at 3.32%.

On the primary calendar, JPMorgan priced $172.6 million of King County, Wash., sewer revenue and refunding and limited-tax general obligation refunding bonds, down significantly from the $256.2 million originally expected.

The $104.2 million was down from the expected $132.5 million of sewer bonds. The credit is rated Aa2 by Moody’s Investors Service and AA-plus by Standard & Poor’s.

Yields ranged from 2.77% and 2.67% with 4% and 5% coupons in a split 2023 maturity, 2.93% and 2.78% with 4% and 5% coupons in 2024, and 3.08% and 2.89% with 4% and 5% coupon in 2025. The bonds yielded 4.15% with a 5% coupon in 2052. The bonds are callable at par in 2022.

The $68.4 million was much less than the expected $123.7 million of limited-tax refunding GOs. The credit is rated Aa1 by Moody’s and AAA by Standard & Poor’s.

Yields ranged from 0.20% with a 2% coupon in 2013 to 2.84% with a 5% coupon in 2025. The bonds are callable at par in 2022.

Morgan Stanley priced $112.1 million of Kentucky Infrastructure Authority wastewater and drinking water revolving fund revenue bonds, rated triple-A by the three main rating agencies.

Yields ranged from 0.51% with 2% and 3% coupons in a split 2014 maturity to 3.75% with a 3.625% coupon in 2032. Bonds maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.

And while some primary deals were downsized in the market, the secondary market showed strengthening. According to data compiled by Markit, six out of a sample of seven CUSIPS showed firming, including Ohio, Puerto Rico, and California state bonds.

In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming.

A dealer sold to a customer Minnesota Public Facilities Authority 5s of 2019 at 1.60%, nine basis points lower than where they traded a week before.

A dealer sold to a customer Massachusetts Water Resources Authority 5s of 2037 at 3.66%, six basis points lower than where they traded last week.

A dealer bought from a customer California State Public Works Board 5s of 2037 at 4.85%, four basis points lower than where they traded Friday.

A dealer bought from a customer Employees Retirement System of Puerto Rico 6.15s of 2038 at 6.55%, three basis points lower than where they traded a week prior.

Last week barely saw inflows into muni bond mutual funds that report weekly, according to Lipper FMI. MMD’s Daniel Berger noted that in late 2010 and early 2011, the iShares S&P National AMT-Free exchange traded fund — ticker MUB — was a good indicator of retail fund flows.

For the week ending March 21, bond funds reported net inflows of $88.8 million, muni bond funds saw $698 million net inflows for the week ending March 13, and $1.2 billion for the week ending Feb. 29. Similarly, MUB closed at 108.8 on March 19, 107.92 on March 12, 109.48 on March 5, and 110.1 on February 7.

“It’s a bit uneven and too early to make a solid conclusion,” according to Berger, “although both appear to have fallen lately.”

Over the last week, muni-to-Treasury ratios rose as munis underperformed Treasuries and become comparatively cheaper. The five-year muni-to-Treasury ratio jumped to 93.6% from 84.7% the week prior. The 30-year ratio increased to 102.7% from 101.2% the week prior.

The 10-year ratio fell slightly to 96.9% on Friday from 98.7% the week prior as munis outperformed Treasuries and became comparatively more expensive.

The slope of the curve widened out to 123 basis points from 118 basis points the week before. Over the course of last week, the slope collapsed to a 12-month low of 114 basis points before widening.

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