Municipal yields held steady on a quiet Friday as market participants prepared for Memorial Day weekend.
Yields stabilized after climbing for five days straight, according to Municipal Market Data's triple-A scale. Market participants said that the increase in yields indicated only a minor sell-off.
"In near term you are going to see good performance out of muni asset class and continued demand," said Jim Colby, chief municipal strategist at Van Eck Global.
Yields have risen by five basis points to 3.48% for the 30-year, and by three basis points to 2.21% for the 10-year since market close on May 15, according to Municipal Market Advisors' data. The two-year held steady at 0.34%. Market participants said that this sell-off was natural given the extended rally the muni market has experienced in the last month.
"It is a tired market, it has done so well for so long that it's time to take a step back," Colby said. "It's the normal ebb and flow of markets, particularly when they have gained the kind of ground muni have recently."
Yields for the 30-year have fallen by 13 basis points, by 11 basis points for the 10-year and by four basis points for the two-year since May 1.
Morgan Stanley in a report Friday said anticipation of a holiday-shortened week contributed factor to the past week's mild price weakness.
A trader in Florida said he expected volume to be light on Friday because many investors left for vacation.
"The biggest issue on Friday will be making sure desks are stacked," he said.
Barclays Capital wrote Friday that favorable seasonal factors will provide municipal bonds with support, at least in the short-term. The recent sell-off brings attention to the rates risk of owning munis at current yield levels, according to Morgan Stanley.
"Munis are trading at relatively tight levels, particularly at the short end of the curve, and investors could give up much of the year-to-date gains if forecasts for significantly higher rates are realized," the report said.
Negotiated deals will lead again in the coming week, since there are no competitive deals scheduled totaling over $100 million. The three largest negotiated deals are all expected to come to market on Thursday.
Two of the biggest negotiated deals are airport deals, including the largest deal of the week, the City of Chicago's Chicago Midway Airport's $784 million second lien revenue and revenue refunding bonds coming to market in an alternative minimum taxable and an alternative minimum tax-exempt series. The taxable series has maturities ranging from 2021 to 2034, and a maturity of 2041. The tax-exempt series' maturities range from 2019 to 2037.
Barclays Capital will price the bonds, which carry ratings of A3 from Moody's Investors Service, and A-minus from Standard & Poor's and Fitch Ratings.
The Metropolitan Washington Airport Authority is issuing $542 million airport system revenue and refunding bonds that are subject to an alternative minimum tax. Bank of America Merrill Lynch is the lead underwriter and the bonds received an A1 from Moody's and AA-minus from S&P and Fitch.
The other sizable negotiated deal is the Massachusetts Water Pollution Abatement Trust State Revolving Fund's $561.2 million refunding bonds, with Bank of America Merrill Lynch as managing underwriter. The bonds will have their retail order period on Wednesday and will enter their institutional sale period on Thursday.
The bonds carry a Aaa rating from Moody's and AAA from S&P and Fitch.
