The tax-exempt market extended its week-long gaining streak into Friday as traders said munis followed Treasuries higher and demand outweighed supply.
Munis were stronger every trading session this week and ended as much as three basis points stronger Friday.
“It’s been pretty strong now for five days and it’s not slowing down at all,” a Chicago trader said. “It’s stronger with good activity.”
He added that it’s not a blowout rally, but the market is two or three basis points stronger. “Everything is going in our favor.”
But by Friday afternoon, activity started to slow down. “Activity has died off,” a New Jersey trader said. “It felt firmer in the morning and Treasuries improved but it’s just quiet now.”
Overall, this trader said the market feels very tight. “Buyers are buying what they have to, but they are trying to wait. For retail, it’s very frustrating. And there isn’t a lot of flow.”
In the secondary market, trades compiled by data provider Markit showed firming.
Yields on Kentucky’s Louisville and Jefferson County Metropolitan Sewer District 5s of 2025 and Texas State Turnpike Authority 0s of 2023 fell four basis points each to 2.25% and 3.31%, respectively.
Yields on New York’s Triborough Bridge and Tunnel Authority 5s of 2022 fell three basis points to 2.02% while California’s Golden State Tobacco Securitization Corp. 5s of 2033 dropped two basis points to 5.69%.
Yields on Kansas City, Mo., Industrial Development Authority 5s of 2021 and Dormitory Authority of the State of New York 5s of 2033 fell one basis point each to 2.54% and 2.87%, respectively.
Municipal bond market scales finished firmer across the board Friday, particularly in the belly of the curve.
Yields on the Municipal Market Data triple-A GO scale ended as much as three basis points lower. The 10-year yield plunged three basis points to 1.78% while the 30-year yield dropped one basis point to 2.90%. The two-year closed at 0.31% for the ninth straight session.
For the week, the 10-year MMD yield plummeted 12 basis points from 1.90% the previous Friday. The 30-year yield is down four basis points for the week from 2.90% the previous Friday.
Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale closed as much as one basis point lower. The 10-year and the 30-year yield fell one basis point each to 1.82% and 2.98%, respectively. The two-year was steady at 0.33% for the fourth session.
For the week, the 10-year MMA yield is down eight basis points from 1.90% the previous Friday. The 30-year yield fell four basis points from 3.02% the week before.
Treasuries were stronger, particularly in the belly of the curve. The benchmark 10-year yield plunged four basis points to 1.85% while the 30-year yield fell two basis points to 3.07%. The two-year was steady at 0.25%.
And while municipals struggled in February, the market has posted gains year-to-date. “Municipal bonds have struggled in February following a good start to 2013,” wrote Anthony Valeri, market strategist at LPL Financial. “But on a positive note, year-to-date municipals still hold a performance advantage to their taxable counterparts.”
