NEW YORK – An eight basis point tightening in longer Treasury yields has yet to impact the benchmark municipal bond curve.
Intermediate and long Treasuries have rallied all morning with the 10- and 30-year yields sliding seven basis points each to 2.32% and 3.37%. Trading has been somewhat choppy in the last hour, but nothing like the equity market: the Dow Jones Industrial Average has crossed Thursday’s closing level 11 times so far.
Muni traders are sitting out on the action – a typical play in uncertain climates.
“Some things are cheaper but the market is inconsistent” a trader in New Jersey said. “I can’t tell you everything is up; it’s mixed out there.”
Municipal Market Data’s triple-A curve is mostly steady, though yields have fallen one basis point for bonds maturing from 2017 to 2020.
Two concerns are shaping the market: questions concerning how Europe will implement its plan to save Greece and the continent’s banks, and the prospect of more tax-exempt paper hitting the market. Both events have the same impact: sit tight and wait for clarity.
“Why take undue risks when you don’t know how the primary gets priced?” asked the New Jersey trader.
The Bond Buyer estimates that new supply next week will total $8.241 billion, up from $7.043 billion this week. Included on the calendar is $1.5 billion in competitive deals and $6.7 billion of negotiated offerings.
A trader in Chicago added that people are testing the waters to check prices, but it’s not a day for a big splash.
Muni-Treasury ratios remain attractive, but munis have outperformed in the rising yield environment of recent weeks, causing ratios to drop.
At Thursday’s close, the 10-year ratio was 102.9% and the 30-year ratio was 110.5%. At the start of the month, the respective figures were 125.6% and 128.6%.
The two-year muni yield finished one basis point higher at 0.46% on Thursday, after holding steady at 0.45% for 10 consecutive sessions. The 10-year muni yield climbed seven basis points to 2.46% and the 30-year muni yield finished eight basis points higher at 3.80%.
