The tax-exempt market appeared to find its footing this week as buyers felt comfortable entering the market as the Treasury market showed stability.
Yields continued to fall Friday afternoon, supported by a 10-year Treasury yield that was range-bound in the 2.90% to 3.00% range. Attractive muni-to-Treasury ratios that were over 100% also drew in buyers.
"I would hesitate to say there is a surge of buying," said Robert Collins, head of municipal fixed-income at Wilmington Trust Investment Advisors. "The market appears to be establishing its balance after several weeks, or even months, of falling backwards. At some point rates settle out and we seem to have consolidated here."
Looking back at the week, munis have followed the lead of Treasuries. "We are up on a total return basis very modestly this week, but up is good," Collins said.
Still, fund flows continue to plague the market and that is one of the biggest negative factors affecting the muni market. But, positive supply and demand factors are helping to support prices.
"Supply has been choked off," he said. "Refundings continue to be weak as ratios between taxable and tax-exempts do not favor refinancings. So the supply side of the equation is offering support for munis as well as a little better picture for Treasuries."
On Thursday, yields on the triple-A Municipal Market Data scale ended as much as eight basis points firmer. The 10-year yield slipped eight basis points to 2.87% and the 30-year yield dropped five basis points to 4.41%. The two-year was steady at 0.43% for the 41st straight session.
Yields on the Municipal Market Advisors scale ended as much as seven basis points lower. The 10-year yield dropped six basis points to 3.04% and the 30-year yield dropped five basis points to 4.52%. The two-year closed unchanged at 0.55% for the 20th session.
Treasuries were slightly stronger Friday afternoon. The benchmark 10-year yield and the 30-year yield slid one basis point each to 2.90% and 3.84%, respectively. The two-year yield rose one basis point to 0.45%.
In retail trades of under 100 bonds, activity jumped both in trades and par value, according to BondDesk Group.
Par value of buy trades rose to $2.256 billion from the previous week's $1.719 billion during the holiday-shortened Labor Day week. Investor sell trades rose this week to $1.001 billion from the prior week's $687 million. Buy trades and sell trades were the third highest in par value in the last five weeks.
The buy-to-sell ratio fell to 2.3 from the prior week's 2.5.
Retail participation waned this week, according to Interactive Data. In number of trades on Tuesday, retail participation fell to 96% from last Tuesday's 97%. In par value, retail stayed flat at 38%.
By Wednesday, retail activity in number of trades fell to 95% from the previous Wednesday's 97%. In par value, retail accounted for only 33%, down from 37% the previous Wednesday.