With few new issues providing direction Wednesday, tax-exempts traded steady after a buying spree in the morning cooled off.
Despite lackluster trading Wednesday, munis have outperformed in recent weeks. "The 10-year Treasury is off 30 basis points in the last two weeks while the 10-year muni is only off 13 basis points," a Chicago trader said. Since the employment situation report was released May 3, the 10-year Treasury yield increased from 1.63% to 1.94% Wednesday.
"Munis have performed but customers are backing away," this trader said, adding mutual funds in Boston propped up the market in the morning by buying 4% coupons and higher in the seven- to 15-year range in $1 to $10 million block sizes. But outside those accounts, buyers weren't participating. "There is money to put to work but we are not seeing a lot of it. Stocks are at their highs and there are a lot of cross currents."
This trader said that until the yield curve cheapens, there won't be any exciting trades. "With the yield curve down here, it's the same conversation. No one is married to anything."
Yields on the Municipal Market Data triple-A GO scale finished higher beyond the front end of the curve Tuesday. The 10-year yield climbed two basis points to 1.83%. The 30-year yield rose three basis points 2.98%. The two-year held steady at 0.28%.
The Municipal Market Advisors 5% scale also showed yields rising Tuesday. The 10-year and 30-year yields each moved up three basis points to 1.89% and 3.10%, respectively, on the day. The two-year yield held steady at 0.33% for a fourth consecutive session.
Treasuries were slightly stronger across the curve Wednesday afternoon. The benchmark 10-year and 30-year yields fell one basis point each to 1.95% and 3.16%, respectively. The two-year yield also slid one basis point to 0.25%.