NEW YORK — The municipal market has adopted a somewhat weaker tone heading into the afternoon. Little activity in the secondary, tentatively rising Treasury yields, and slight concessions in what little product remains on the Street have combined to push muni prices somewhat lower.
“[The market] really hasn’t given up a lot of ground,” a trader in Dallas said. “Considering the amount of volume we’ve been through, it’s held in there pretty well. With a weaker Treasury market, I would expect it to take some more concessions to continue to get buyers in here.”
By press time, the Municipal Market Data scale had yet to be updated. Yields Friday morning were unchanged through six years. Beyond that, they were flat to two basis points higher.
The benchmark 10-year muni yield actually fell Thursday, dropping three basis points to 2.55%. Through Wednesday, it had soared 61 basis points since it held a record low on Sept. 23.
The 30-year yield fell four basis points to 3.71%. The two-year yield held steady at 0.45%.
Treasury yields have mostly been rising Friday, following a brief rally one day earlier. The benchmark 10-year Treasury yield has climbed six basis points to 2.24%. Before Thursday, it had soared 43 basis points in six sessions.
The 30-year has jumped seven basis points to 3.22%. The two-year yield has ticked down one basis point to 0.28%.
Market estimates have municipal bonds expected to be sold next week totaling $6.7 billion. This week’s number was revised downward to $4.5 billion.
Market watchers have noted how more than half of the expected new supply should arrive in just three deals. They include a $2 billion California general obligation loan; $1 billion in Hudson Yards, N.Y. bonds; and a competitive deal involving $825 million in Pennsylvania GOs.
A large amount of supply emerging from a few issuers could be a positive for the market, according to MMD analysts, Randy Smolik and Dominic Vonella. “The limited array of issuers could help to create a healthier tone for the municipal market which has faced severe bout of weakness over the past couple weeks,” they wrote in a recent research post. “Highly concentrated new issue supply can often create a dichotomy in the market with the general market potentially able to outperform credits with heavy supply.”
The trader in Dallas doesn’t foresee a problem with the coming week’s volume. “Those kinds of deals seem to be getting done,” he said. “It’s the smaller deals that [can be difficult]. Guys are selling bonds out of syndicates from a couple weeks ago down 25 basis points [in price], down 30, down 35; That stuff starts to sting.”
