NEW YORK – It was a quiet rally Monday as tax-exempt bonds continued to firm amid slim issuance and light trading.
“I see a slight improvement,” said a trader in New York. “There’s a firmness in our market and if there was any hesitation among buyers, we were helped by Treasury improvement.”
Tax-exempt prices have now been steady or rising for 25 consecutive sessions.
The benchmark 10-year yield fell two points Monday to 2.64%, its lowest since Nov. 10, 2010. Its yield has now dropped 62 basis points since April 11, according to Municipal Market Data.
The two-year muni held steady at 0.46%, and the 30-year yield declined one basis point to 4.36%, the lowest since December 6.
A retail-oriented trader in San Diego noted certain buyers aren’t too enticed by the low yields.
“A lot of people are coming in to check rates, and they are surprised yields have recovered compared to the sell-off we saw earlier in the year,” he said. “That may be holding people back from buying.”
New issues appeared to perform well. M.R. Beal & Co. offered a second retail period for $237.8 million of Connecticut general obligation debt. The bonds, rated AA or equivalent by all three rating agencies, was first offered to retail investors Friday and hits the institutional buyer base Tuesday.
Yields ranged from 2.37% in 2019, one basis point lower than on Friday, to an equivalent 3.26% in 2023.
BOSC Inc. also sold $133.6 million of unlimited tax refunding bonds for Conroe Independent School District in Montgomery County, Texas. The gilt-edged deal bonds were enhanced from AA ratings by a wrap issued by the Permanent School Fund. Yields ranged from 1.17% in 2015 to 3.60% in 2026.
Stocks sold off Monday — The NASDAQ lost 1.63% — as investors worried about deflating commodity prices, the IMF chief’s sexual abuse scandal, and debt in Europe. Fresh economic data didn’t help as a regional manufacturing index in New York slowed down more than forecasts.
But risk aversion helped Treasuries strengthen to calendar-year highs. The two-year yield closed three basis points down from Friday’s close at 0.52%, the 10-year yield fell four points to 3.14%, and the 30-year yield finished five points lower at 4.27%.
The rally in Treasuries over the past month has helped guide muni prices higher, but muni outperformance allowed the 10-year muni-Treasury ratio to pierce its 30-year average of 83.35% last week. The ratio was 83.17% Monday, according to MMD, down from 91.6% a month ago. On Thursday it hit 82.25% — its lowest in a year.
“We feel that this relationship is destined to fall further in the next two months,” wrote MMD’s Daniel Berger Monday morning. He noted market participants are less worried of defaults and optimistic that heavy reinvestments scheduled in June and July should keep muni prices elevated.
Traders continue to say light issuance is an even bigger driver than outside events, but whether yields can continue to fall is, of course, an open question.
Analysts at Piper Jaffray described muni investors as “apathetic” given the low-yield environment,
yet they noted it’s not clear issuance will pick up soon, so muni prices could continue to “hover in this general range.”
This week’s calendar totals $4.65 billion, versus $4.27 billion last week and an average of roughly $8 billion per week in 2010. Issuance to date is 54% lower than the same period last year.
