Market Post: Muni Yields Continue to Find Their Footing in Secondary

Traders expect the secondary market to set the direction once again for munis.

If many market participants saw Monday as a catch-up day following the holiday hiatus, they'll approach Tuesday's session as one to settle in and see where they're comfortable about putting money to work at current levels, a trader in New York said.

The day's session started out stronger in tenor, even if, as with Monday, few deals have cleared to provide a definitive direction.

"I have seen some activity on the longer end, some larger offerings come out, this morning, but nothing substantial this moment," the trader said. "We're looking at lack of new supply until probably the next couple of weeks. So, the secondary's the name of the game, if people need to get money working at this point."

No large issues arrived Monday, and very few are anticipated this week. Potential long-term volume is expected to total $1.79 billion, up from sales of $10.8 million last week. Some market analysts, though, anticipate the calendar will reach about $2.5 billion this week.

JPMorgan is expected to price a $240 million offering of University of Texas Permanent University Fund bonds, the largest on the negotiated calendar. It could arrive as early as Tuesday.

"People are settling in and seeing where they need to get money working, and seeing where they feel comfortable about where rates have been, at this point," the trader said.

Subdued activity in the secondary market Monday fell well below the past month's average, Alan Schankel, managing director at Janney Capital Markets noted in a research brief. Municipal Securities Rulemaking Board volume weighed in at $6.1 billion, compared with December's daily average of $8.5 billion, he added, which included two particularly slow holiday weeks.

Yields on the Municipal Market Data triple-A scale are steady through two years. Thereafter they're flat to two basis points lower.

Triple-A, tax-exempt two-, 10- and 30-year yields each closed Monday's session one basis point lower. They measured 0.34%, 2.78% and 4.19%, respectively.

Yields on the Municipal Market Advisors benchmark triple-A scale firmed across much of the curve Monday by as much as two basis points. The 10-year triple-A yield slipped one basis point to 2.78%.The 30-year also slid one basis point to 4.40%, while the two-year declined two basis points to 0.35%.

Treasury yields have continued their downward trajectory Tuesday morning. The 10-year yield has fallen two basis points to 2.95%. The 30-year yield has slipped one basis points to 3.89%. The two-year inched down one basis point 0.40%.