NEW YORK — Yields for municipals and Treasuries are diverging as gains in the stock market have clouded, though not completely obscured, interest in fixed-income securities.
Still, opinions vary on how active the secondary market is heading into the afternoon. Investors have shown interest in the short end of the curve, according to Municipal Market Data Analyst Randy Smolik.
“From roughly 10 years and shorter, munis still feel a little grabby,” he wrote in a recent market column. “But along with stronger high-grade trades, we have seen a reach for more yield as well.”
But one trader in California said that investors are more fixated with equities. “The government market is off and no one cares about bonds right now; it’s all about equities,” she said.
Tax-exempt yields are mixed, so far, on the day, according to Municipal Market Data. They’re strongest between six and 15 years along the curve, where they are flat to four basis points lower.
Munis from 2027 to 2032 are flat to one basis point firmer. Those maturing after 2032 are actually flat to one basis point higher.
Wednesday’s session ended with the 10-year muni yield down 12 basis points to 2.26%, its lowest yield since Sept. 3. The two-year muni yield dropped five basis points to 0.30%, its lowest yield in more than two years.
The 30-year muni yielded 3.84%, eight basis points lower on the day, and its lowest level since late October.
Treasuries have mostly weakened. The benchmark 10-year Treasury yield, after a 19-basis-point plunge Wednesday, jumped 16 basis points to 2.24%. The 30-year yield rose 13 basis points to 3.61%.
The two-year yield, though, has held at one basis point above its all-time low at 0.19%.
And the market has gotten little help from the primary, as supply has been virtually non-existent all week. Muni market participants note that this has played a prominent role in plunging muni yields. This week, the industry predicts that municipal bonds sold will total $2.25 billion against a revised $3.24 billion last week.
Some Texas-based deals set the pace among negotiated sales. JPMorgan priced $168.3 million of Fort Worth, Texas, water and sewer system revenue refunding and improvement bonds for four counties. The bonds are rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings.
Yields range from 0.28% with a 3.00% coupon in 2013 to 3.81% with a 5.00% coupon in 2031. Debt maturing in 2012 was offered in a sealed bid.
On the competitive sales ledger, Citigroup won $135 million of Florida Department of Environmental Protection Florida Forever revenue refunding bonds. Information on yields was not available at press time, but the credits have reportedly seen solid interest.
After several days of enormous market turns, equities have seen strong gains. The markets were up by at least 3.17%, with the Dow Jones Industrial Average recently 339 points higher than its close yesterday.
Traders said they’re pulling for a recovery from the equities markets. Another rough outing in the stock markets, they added, would likely shift muni investors’ focus to their equities portfolios and away from fixed income.
