Market Post: Munis Continue To Weaken

NEW YORK – The tax-exempt market continued to weaken for the fourth consecutive trading session as yields are just too low to be attractive anymore.

“The market still feels weird,” a New York trader said. “Retail is buying a little, but dealers aren’t really moving either way.”

Munis were weaker Wednesday morning, according to the Municipal Market Data scale. Yields inside four years were steady while yields outside five years rose as much as three basis points across the curve.

On Tuesday, the 10-year yield jumped five basis points to 1.84%. The 30-year yield was steady at 3.22%. The two-year was the anomaly, as the yield fell one basis point to 0.29%, setting a record low as recorded by MMD. The previous record of 0.30% was set Aug. 10.

Treasuries continued to weaken for the second consecutive trading session as Greece nears a deal to solve its fiscal crisis. The two-year yield was steady at 0.26% while the 30-year yield moved up one basis point to 3.16%. The benchmark 10-year yield rose two basis points to 2.00%.

In the primary market Wednesday, the competitive calendar is expected to be full of activity. And with almost $18 billion of bonds maturing in February, the market may be able to absorb supply this week.

The Florida Board of Education is expected to issue $286.4 million of public education capital outlay refunding bonds, rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch Ratings.

Tarrant Regional Water District is expected to issue $134.6 million of water transmission facilities contract revenue bonds after issuing $160 million in the negotiated market Monday. The bonds are rated Aa1 by Moody’s.

In the negotiated market, Barclays Capital is expected to price $257.9 million of University of Washington taxable and tax-exempt general revenue and refunding bonds, rated Aaa by Moody’s and AA-plus by Standard & Poor’s.

Morgan Stanley is expected to price $240.6 million of Cleveland, Ohio, airport system revenue bonds. The credit is rated Baa by Moody’s and A-minus by Standard & Poor’s and Fitch.

Over the past week, muni-to-Treasury ratios have fallen as munis outperformed and became more expensive. The five-year ratio fell to 87.5% on Tuesday from 100% the week prior. The 30-year ratio fell to 102.5% from 106.8% the week before.

The 10-year spot has reversed, with the ratio increasing to 93.9% on Tuesday from 93.3% the week prior.

The slope of the yield curve continues to flatten. The 10- to 30-year slope fell to 138 basis points from 146 basis points the week before.

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