NEW YORK — Munis may be extremely cheap compared to Treasuries, but that hasn’t led to a lot of interest.
So far on the day, yields for munis and Treasuries are moving in opposite directions. And the week’s new issuance has arrived for retail investors while the market is trying to clean up last week’s volume. All the while, investor activity has been limited as the bid side appears spotty, but strong, a trader from California said.
“A lot of deals last week got hung up, and still have balances to work through,” he added. “People are pricing them at old market high prices, just given that there’s little competition out there. And they’re clearly not getting them done. Until we see a drastic scale change, it’s going to be lackluster performance.”
Tax-exempt yields aren’t following Treasuries lower, according to the Municipal Market Data scale. They’re steady through six years and beyond 12 years. Between seven and 12 years, they are flat to two basis points higher.
The 10-year muni yield ticked up one basis point Friday to 2.22%. The 30-year yield slipped one basis point on the day to 3.55%. The two-year yield held for a third session at 0.34%.
Treasury yields crossed noon Monday firmer. The benchmark 10-year Treasury yield has dropped five basis points to 1.86%.
The 30-year yield has fallen six basis points to 2.84%. The two-year yield has ticked down one basis point to 0.25%.
More new issuance is expected for the week. The market anticipates a boost in volume to $8.26 billion. Last week, the market saw a revised $7.69 billion in new supply.
This could mean higher yields for a market past the short end of the curve, JPMorgan’s Peter DeGroot wrote in a recent analyst report. “The elevated supply coupled with diminished redemption capital may provide the backdrop for somewhat cheaper market clearing levels in 10 years and longer on the curve,” he wrote.
RBC Capital Markets priced for retail $521.7 million of Oklahoma Turnpike Authority Oklahoma Turnpike System refunding second senior revenue bonds. The bonds were rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch.
Yields range from 0.74% with coupons of 1.00% and 5.00% in multiple maturities in 2014 to 3.71% with a 3.70% coupon in 2028. Debt maturing in 2012 and 2013 was offered in a sealed bid. Some credits maturing in split and multiple maturities from 2014 through 2028 were not offered.
In economic news, the Institute for Supply Management reported Monday that the overall economy grew for the 28th consecutive time, while the manufacturing sector expanded for the 26th time.
The ISM index climbed to 51.6 in September from 50.6 in August, according to the ISM’s monthly report on business. An index reading below 50 signifies a slowing economy; a level above 50 indicates one that is expanding. A measure of 50 shows an unchanged economy.
Economists predicted the index would fall to 50.5, according to those polled by Thomson Reuters.
