NEW YORK – The tax-exempt market ended the week on a much firmer tone. Munis started off very weak in the beginning of the week, but slowly strengthened as new deals were attractively priced and received better reception.
“We didn’t have much exposure to the big issues this week, but it did seem like everything firmed up a bit moving forward,” a New York trader said. “Everyone seems to be banking on the equity markets and confidence on a macro level to gauge their interest in munis and other flight-to-quality investments. This should be interesting heading into next week.”
Munis continued to strengthen early Friday afternoon, according to the Municipal Market Data scale. Yields inside five years were steady while the six-year yield fell between two and four basis points. The seven-year yield dropped between four and six basis points. Yields between eight and 12 years plummeted between five and eight basis points. Outside 13 years, yield dropped up to six basis points.
On Thursday, the two-year yield finished steady at 0.36%. The 10-year yield fell six basis points to 2.25% while the 30-year yield fell three basis points to 3.42%.
Over the last week, muni-to-Treasury ratios rose as munis underperformed Treasuries and become comparatively cheaper. The five-year muni-to-Treasury ratio jumped to 92.7% from 84.7% the week prior. The 10-year ratio rose slightly to 99.6% from 98.7%. The 30-year ratio increased to 102.1% from 101.2% the week prior.
The slope of the curve fell slightly to 117 basis points from 118 basis points the week before. The slope collapsed to a 12-month low of 114 basis points mid-week before widening back out.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showing firming over the last week.
A customer bought from a dealer Public Utilities Commission of the City and County of San Francisco 6s of 2040 at 4.75%, nine basis points lower than where they traded earlier in the week.
A customer bought from a dealer City and County of Broomfield, Colo., Water Activity Enterprise 4s of 2019 at 2.58%, five basis points lower than where they traded earlier in the week.
A customer sold to a dealer New York Liberty Development Corp. 5s of 2043 at 4.42%, four basis points lower than where they traded earlier in the week.
A customer sold to a dealer Puerto Rico 5s of 2035 at 4.78%, two basis points lower than where they traded earlier in the week.
Looking to next week, the tax-exempt market can expect $3.36 billion, down from this week’s revised $5.53 billion. In negotiated deals, $2.80 billion is expected to come to market, down from this week’s revised $4.24 billion. On the competitive calendar, $557.9 million is expected, down from this week’s revised $1.29 billion.
