The Municipal market inaugurated the new year with a modicum of trading and a slightly stronger tenor to yields.
The market's fallow season continued with some support from Treasuries, which
"The fact that Treasuries seemed to have dropped below 3.00% has given us a little bit of support here," he said. "And then we have the MMD roll," he said, referring to how maturities on the Municipal Markets Data scale are smoothed to account for the shift from December of one year to January of the next. "I didn't see anything that would really provide some market direction."
Some electronic trading systems — which don't require much staffing — were relatively active, the trader said. Customers generated roughly half of the bid-wanteds they normally do; he estimated interdealer broker bid-wanteds fell to no less than about two thirds that of an average day.
By midday, the long end of the muni yield curve held up well, a trader in Texas said. Munis have gotten cheap enough, relative to prices for Treasuries, that there's probably some room for the ratios to improve, he said.
No muni bond issuance is expected this week. In fact, few muni participants have returned to their desks following the New Year's holiday, as they're more content to sit out the rest of the week.
On the year, long-term muni issuance fell 13% in 2013, Thomson Reuters numbers showed. For last year, $329.8 billion reached the market in 11,267 deals, against $379.6 in 13,115 issues in 2012.
With the exception of 2011, when the muni market saw $286.6 billion in long-term volume, 2013 marked the lowest amount of issuance since 2001, when municipalities floated $287.7 billion in issuance.
For the month of December, though, long-term issuance fell just 6%, to $25.2 billion in 757 deals, compared with $26.8 billion in 997 issues in the same period in 2012.
The fourth quarter of 2013 saw tax-exempt yields outperform those of Treasuries, MMD numbers showed. The 10-year triple-A yield rose 21 basis points over the quarter, compared with a 38-basis-point jump for equivalent Treasuries.
The 30-year muni yield rose just seven basis points over the past three months, against 24 basis points for the 30-year Treasury. And while the two-year muni yield fell four basis points over the fourth quarter, the two-year Treasury rose six basis points.
Muni watchers expect demand to remain weak. Muni bond mutual funds recorded a 31st straight week of outflows for the week of Dec. 25, according to Lipper FMI numbers.
Weekly reporting funds recorded outflows of $1.49 billion, with long-term muni bond funds providing the lion's share of the losses, at $1.15 billion.
Muni pros continue to watch bond fund flows carefully, the trader in Texas said, waiting for a reverse in course. Most likely, he added, flows will continue to leave bond funds for those of stocks, generally, for much of 2014.
"We'll have that headwind," he said. "But I don't think it'll be a big rout. It's going to be slowly creeping yields. But that's OK: a little higher yields brings buyers back in."
There were few trades in Puerto Rico paper of note Thursday, traders said. But the commonwealth still made news around the new year as it readies its next bond sale, Alan Schankel, managing director at Janney Capital Markets, said in a research brief.
Numbers the Government Development Bank of Puerto Rico released for November showed negligible economic growth, Schankel wrote. Still, they represented a third straight month they've improved.
The Economic Activity Index rose 0.047% in November, compared with October. But it registered 5.7% less than November 2012 levels, the sharpest year-over-year drop since December 2010.
In the secondary market, trades were mostly stronger on Thursday, according to data from Markit. University of Illinois revenue 5s of 2028 plunged seven basis points to 4.20%.
Hawaii general obligation 5s of 2018 and New York GO 4s of 2029 fell three basis points to 1.32% and 4.05%, respectively. Tennessee Energy Acquisition Corporation gas revenue 5.25s of 2026 dropped five basis points to 4.78%.
Golden State, Calif., Tobacco Securitization Corp. revenue 4.5s of 2027 skipped up five basis points to 6.30%.
MMD pointed out that in the first trading session of the new year, the changeover from the last day of the previous year causes smoothing in maturities as muni yields roll down from December to January. Roll estimates included declines of four basis points in 2027, two basis points in 2028 and one basis point in 2029.
Earlier maturities reported strengthening of up to three basis points for muni debt maturing between 2017 and 2025.
The triple-A, tax-exempt 10-year closed Thursday's session at 2.79%. The 30-year finished at 4.20%. The two-year yield closed at 0.35%.
Yields on the Municipal Market Advisors benchmark triple-A scale on the day remained mostly unchanged across the curve. The 10-year triple-A yield landed at 2.79%, the 30-year at 4.41% and the two-year at 0.37%.
Treasury yields improved across most of the curve Thursday. The 10-year yield fell three basis points to 2.99%. The 30-year yield declined three basis points to 3.93%. The two-year leveled off at 0.39%.
