NEW YORK – Slim new issuance and light trading are the themes of the muni market Thursday as participants wait for political turmoil in Washington to settle before making any major moves.
Municipal Market Data’s triple-A scale is mixed. Munis maturing in five years – already the richest spot on the yield curve – are seeing yields fall as much as two basis points. Those maturing between 2021 and 2024 are seeing yields rise one basis point, while all other maturities are flat.
“It’s not surprising that you would see a lot of activity on the front end of the curve given the uncertainty in Washington,” a trader in California said. “There is less activity further out and maybe a touch of weakness 15 years and out.”
He said selling pressure on the long end would be worse if the market wasn’t confident that a deal on the debt ceiling will be reached, but most observers think some kind of agreement will be found. Still, he added, there’s a fair bit of talking about lightening up on the long-end.
“Longer out the curve trading was still stigmatized by the folly in Washington,” added MMD analyst Randy Smolik in a midday note.
No major issues are on the calendar Thursday, which could be a blessing as traders say dealers are still struggling with unsold balances from competitive deals won in the past week or two.
“We continue to see a lot of the investable dollars go to paper five years and in, primarily as a safety trade,” said a Florida trader at the open. “I haven’t seen traders pull back yet, but the point is that a lot of the paper hasn’t been sold yet. “A lot of buyers are sitting on their hands.”
Retail trading was described as a little bit slow. The last day to book a trade for the month was Tuesday, so there is less urgency to buy more paper now.
Intermediate and long-term muni yields have been rising slowly the past two weeks. The 10-year finished Wednesday at 2.69%, compared with 2.66% on July 20, while the 30-year closed at 4.37%, versus 4.30% on July 14.
In tune with the trader comments, the two-year yield has stayed at a calendar year low of 0.40% since July 12.
