NEW YORK — Secondary trading in the municipal market has increased appreciably Tuesday morning as investors are finally noticing the attractive ratios.
General economic fears have led to free-falling Treasury yields and sliding muni yields. The industry, though, hopes for a resolution Tuesday to the budget-debt ceiling issue in Washington. D.C., so that it can shift its focus back to concerns about Europe, said a trader in New York.
But traders are happy to see more activity, after Monday’s dearth of trading in the secondary, the trader said.
“There are a couple of bid-wanteds and customer offerings surfacing this morning,” he said. “We’re seeing a pretty decent bid-wanted list pop up now which is due at 11,” he said. “Everything is pretty much within 10 years and in at this point. The focus of most people is still 10 years and in.”
Muni yields so far this morning are dropping, according to the Municipal Market Data triple-A curve. Yields are flat to two basis points firmer at the front of the curve. They are three to five basis points lower for maturities from 2019 through 2028. At the long end, yields are four to six basis points lower.
Muni yields plunged across most of the curve Monday. Two-year yields were stuck at a calendar-year low of 0.40%. The 10-year yield pushed four basis points lower to 2.63%. The 30-year yield dropped six basis points to 4.29%
The debt ceiling and budget crisis continues to sustain a massive rally in Treasuries that started at the end of last week. This, in turn, continues to make tax-exempt valuations particularly attractive, by comparison.
Treasury yields, riding the anchor, have yet to touch bottom in response to growing fears about the economy. After plunging 20 basis points in the past two sessions, the benchmark Treasury 10-year yield continues to fall to calendar-year lows. Earlier this morning, it reached 2.67%, more than one percentage point off its high for 2011. It has risen slightly slightly, settling four basis points below Monday’s close, at 2.71%.
The two-year Treasury shed three basis points to 0.35%. The 30-year yield dropped four basis points in the morning to 4.05%.
For new issuance this week, the market predicts $3.25 billion in new volume. Market demand will likely rise above the budget-debt ceiling showdown in Washington, D.C. But the industry is somewhat divided over whether the crisis could affect the calendar. On its own, issuance is expected to be lower than last week’s revised $4.6 billion.
“This week’s issuance calendar is light, posing little challenge to post D.C. debacle demand, assuming all is signed sealed and delivered on time,” wrote Alan Schankel of Janney Capital Markets, in a morning report.
