NEW YORK – As typical on a Friday afternoon, the tax-exempt market has slowed to a stall, breaking for the weekend early.
“Zero” is going on, said a trader a New York. “It’s very quiet today.”
The trader added the secondary remains quiet. “It’s hard pressed to say one way or the other, but it might be a little cheaper today.”
A scale read from the Municipal Market Data was not available by press time. But Friday morning, muni yields were mostly steady, with a one basis point increase on credits maturing between 2018 and 2035.
Thursday, the 10-year tax-exempt yield closed at 2.30% and the 30-year yield closed at 3.71%. The two-year yield closed at 0.42% for its third consecutive session.
Treasuries were up slightly as yields on the long-end dropped a basis point. The 10- and 30-year yield fell one basis point each to 2.06% and 3.12%. The two-year was flat at 0.24%.
A weekly MMD survey on investor sentiment shows new supply remains the biggest fear factor. Traders have not changed their outlook for the short-term, with 46% of the traders holding bearish views on the market, followed by 45% who are neutral, according to MMD analyst Jeanine O’Connor. Only 9% are bullish.
Portfolio managers have increased skepticism of the market for the short-term, with 40% saying they are bearish, up from 30% last week. Portfolio managers who say they are neutral on the market are down to 40% from 50%. For the second straight week, 20% said they were bullish.
Both the primary and secondary markets are slower. In the secondary market, prices were down from Thursday. “Muni secondary showed signs of dealers looking to move a block or two ahead of the weekend,” said MMD analyst Randy Smolik. “From that standpoint there was a slight concession to yesterday's offerings.” He added trading appears to be mixed as the Treasury market still does not provide much direction.
Muni bond fund flows were positive for the fourth consecutive week, although the inflows slowed, according to Lipper FMI. For the week ending Nov. 2, muni bond funds that report flows weekly recorded $141 million net inflows. The week ending Oct. 26 saw net inflows of $310 million.
“Municipal bond mutual funds reported positive inflows again this week, but the level of the net inflows has been trending down for the last few weeks,” wrote Chris Mauro at RBC Capital Markets. “The only bright spot of this week’s report was tax-exempt money market funds which saw their usual early month inflows from municipal bond coupon payments.”
