NEW YORK — An appetite for high-grade blocks in the muni market secondary is meeting scarce supply, making those that traders find more expensive.
And because of the paucity of attractive blocks, and the boatloads of reinvestment money looking for a new home, most anything in the market is trading, a trader in Chicago said.
“There’s a shortage of quality bid-wanteds that has made the market more robust,” he said. “In our market, because of lack of supply in high grades, high grades are trading at a premium to what they have been.”
Muni yields have mostly firmed Friday afternoon, according to the Municipal Market Data scale. They’re steady out to three years. But thereafter, they’re flat to four basis points lower. Yields are seeing their strongest downward pull in the six- to 22-year range.
On Thursday, the benchmark 10-year yield finished flat at 2.22%. The two-year yield closed down three basis points to 0.39% after holding steady at 0.42% for 20 consecutive trading sessions. The 30-year yield finished up two basis points to 3.86%.
Treasuries crossed noon Friday mostly stronger, after opening the day’s session slightly weaker. The benchmark 10-year yield fell four basis points to 2.06%. The two-year held steady at 0.27%. And the 30-year yield dropped five basis points to 3.05%.
Primary market volume should remain near the $6 billion range for the coming week. Industry estimates for expected market volume total $5.82 billion next week, against a revised $5.88 billion this week.
That breaks down to an expected $1.61 billion in competitive offerings, versus a revised $866 million this week. Also, there is an expected $4.21 billion negotiated, against a revised $5.02 billion this week.
The level of supply should remain relatively manageable over the coming week as the holiday season picks up, MMD analysts Randy Smolik and Domenic Vonella wrote in a research post. And though the number of loans should increase from this week’s volume, they don’t anticipate any of what they call “mega” loans.
“As staffing begins to thin and transaction levels lighten we expect that market technicals will drive price action for the muni sector into the end of the year and into the new year,” they wrote. “Supply, redemption data, and muni-Treasury ratios are expected to be the dominant themes over this week and month as the market settles into the holidays.”
