NEW YORK – The tax-exempt market ended lower for the week as the year’s largest week of new issuance overwhelmed the market. Most deals took concessions this week to get done.
“Munis are pretty much based on the primary and with the big supply that came this week, people are just concerned about that,” a New Jersey trader said. “They are trying to get their sights on the new issues and put away bonds at new levels.”
He added the secondary market was quiet Friday. “We were still heavy during the week but today is quiet.”
Looking to next week, the market will be helped by the smaller expected supply. “As time goes on and it gives retail more time to work on the issues that come, it will whittle it down.”
“Munis are slightly weaker with slightly more retail and institutional interest,” a Texas trader said.
In other news, Harrisburg, Pa., announced it plans to skip its March 15 general obligation bond payment of $5.3 million. The New Jersey trader said the New York market has not been affected by the news.
The default is “already priced into the market,” a New York municipal analyst tweeted.
Munis were weaker for the week, according to the Municipal Market Data. The 10-year got hit the hardest with yields rising 14 basis points for the week ending Friday. The 30-year yield jumped four basis points for the week. The two-year yield rose one basis point throughout the week.
On Friday, the two-year yield closed steady at 0.27%, one basis point above its record low of 0.26% it held since Feb. 16. The 10-year yield and the 30-year yield held steady at 2.05% and 3.31%.
Treasuries were slightly weaker. The two-year yield and the benchmark 10-year yield rose one basis point each to 0.33% and 2.04%. The 30-year yield rose one basis point to 3.19%.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening over the past week.
Bonds from an interdealer trade of Pennsylvania Turnpike Commission 5s of 2034 yielded 2.02%, 10 basis points higher than where they traded a week before.
Bonds from an interdealer trade of Chicago 6.034s of 2042 yielded 5.63%, eight basis points higher than where they traded the previous week.
Bonds from an interdealer trade of New York Liberty Development Corp. 5s of 2044 yielded 4.31%, seven basis points higher than where they traded the previous week.
Bonds from an interdealer trade of Municipal Electric Authority of Georgia 7.055s of 2057 yielded 6.66%, five basis points higher than where they traded Wednesday.
Looking ahead to next week, the tax-exempt market can expect $5.81 billion in new issuance, down from this week’s revised $9.36 billion. In negotiated deals, $4.73 billion is expected, down from this week’s revised $7.36 billion. On the competitive calendar, $1.18 billion is expected to come to market, down by almost half from this week’s revised $2 billion.
Muni-to-Treasury ratios have risen as munis underperformed Treasuries and became cheaper. The five-year ratio jumped to 88.6% on Thursday from 77.8% on March 1 when munis began weakening. The 10-year muni-to-Treasury ratio spiked to 101.5% on Thursday from 93.6% at the beginning of the month. The 30-year ratio rose to 104.1% from 103.8%.
The 10- to 30-year slope of the curve has also collapsed. On Thursday, the slope closed at 126 basis points, down from 169 basis points at the beginning of the year.
Despite the rise in yields recently, credit spreads have continued to fall as muni investors go down the credit scale in search for yield. The triple-A to single-A two-year muni credit spread fell to 43 basis points on Thursday from 56 basis points at the beginning of the year. Since munis started weakening last week, the spread has fallen from 44 basis points.
The 10-year triple-A to single-A spread has collapsed, falling to 88 basis points from 96 basis points at the beginning of the year. Since munis started weakening last week, the spread fell from 90 basis points.
The 30-year triple-A to single-A spread has fallen throughout the year to 81 basis points on Thursday from 89 basis points at the beginning of the year. The spread has fall from 82 basis points since munis started weakening last week.
