NEW YORK — The municipal market Friday morning is trying to collect itself and get its bearings after a dramatic week.
Investors have been wrestling with where and whether they should participate with such low nominal yields, little supply, and volatile Treasuries, said a trader in New York. In addition, equities over the past couple of days have been setting the tone for most of the financial markets as a whole, making it tougher for muni investors to see their own market clearly and leading to a couple of days of tentativeness.
Still, the tone 10 years and in certainly seems to be a little better on the morning, he added.
“Raw yields have gotten to the point where, when you approach 4% at the long end, you’ve lost some guys’ appetites for bonds,” the trader said. “And then with the volatility and the sell-off yesterday, you have a little bit of dislocation in the market now. People feel that they’re not missing anything if they don’t participate in these low yields, for the time being.”
Tax-exempt yields continue to weaken at the intermediate and long ends of the curve, according to Municipal Market Data. But after roughly a week of rallying, they have a way to go to return to their calendar-year averages.
Muni yields are unchanged through 15 years. Those maturing between 2026 and 2031 are flat to one basis point higher. And munis maturing after 2031 are flat to two basis points higher.
Thursday’s session ended with softening on the long end of the yield curve. The 10-year muni yield held steady at 2.26%, its lowest yield since Sept. 3. The two-year muni yield remained unchanged at 0.30%, its lowest yield in more than two years.
The 30-year muni yield, though, jumped four basis points to 3.88%, still its lowest level since Nov. 2.
Treasuries have also had a week of thrills and chills. They started Friday mixed, mostly firmer, particularly with intermediate and long-end maturities. The benchmark 10-year Treasury yield, after a 26-basis-point jump, has fallen seven basis points on the morning to 2.27%. The 30-year yield, which Thursday blasted higher with a blistering 31-basis-point rise, dropped four basis points to 3.75%.
The two-year yield ticked up one basis point to 0.20%, two basis points above its all-time low.
The market has gotten little help from the primary, as supply has gone AWOL all week, much as it has since the year began. The industry has pointed out how this has been a major reason behind plunging muni yields. This week, the industry expected $2.25 billion of municipal bond sales. Next week is expected to be better, with $5.28 billion of deals on the calendar.
Also, the volatile marketplace and a gloomy economic outlook together have driven investors from municipal bond mutual funds for a third straight week. The week ending Aug. 10 saw $682 million in outflows from muni bond funds that report their flows weekly, according to Lipper FMI.
The withdrawals are down from those of the previous week, when there were net outflows of $861 million.
High-yield muni funds also saw their third straight week of outflows — after seeing inflows for nine of the previous 11 weeks. Funds saw outflows of $236 million, Lipper reported. The previous week, high-yield funds reported outflows of $118 million.
In economic news, the Commerce Department reported Friday that retail sales increased 0.5% in July. This squared with economists’ expectations.
Sales excluding motor vehicles and parts, though, increased 0.5% for the month — results that were stronger than expected. Total June retail sales were revised higher to a 0.3% increase from the 0.1% rise reported last month. June sales excluding autos were also revised higher to a 0.2% increase from the originally reported unchanged level.
Economists predicted retail sales would rise 0.5%, and for sales excluding autos to increase 0.2%, according to the median estimate from Thomson Reuters.
Meanwhile, the consumer sentiment index from the University of Michigan showed a steep decline in consumers’ assessment of the economy now and into the near future.
