NEW YORK – Munis continue to trade firmer, following Treasuries, as year-end buyers buoy tax-exempts.
“We are pretty busy here,” said a trader in New York. “Buyers are looking for bank-eligible paper. It seems like banks have some cash to spend in the new year.”
“Offering levels are showing little give, with expectation of strong demand as the new year rolls in,” wrote Alan Schankel, managing director at Janney Capital Markets, adding that January redemption flows are expected to come in between $20 billion and $25 billion.
Munis were steady to firmer, according to the Municipal Market Data scale. Yields inside the three-year were flat, while yields on the four year fell two basis points. The five-year to eight-year yield fell between one and three basis points and the nine-year to 24-year yields fell between two and four basis points. Outside the 25-year, yields fell three to five basis points.
On Tuesday, the two-year yield closed flat at 0.36% for its 14th consecutive trading session. The benchmark 10-year yield held at a record low 1.91%, as recorded by MMD last week. The 30-year muni yield remained flat at 3.63%.
Treasuries continued to rally, with the benchmark 10-year yield falling nine basis points to 1.93%. the two-year yield dropped two basis points to 0.28% and the 30-year yield plummeted 10 basis points to 2.94%.
“Buoyant treasuries were making secondary muni offerings a little prouder,” said MMD’s Randy Smolik. “As the taxable market firms, we find the muni secondary more nervous about losing inventory before the new year than preferring to work down positions. Thus, the path of least resistance for the muni market currently seems to be to lower yields.”
While the primary market is mostly shut down for the week, the secondary market is trying to take over. Indeed, trades reported by the Municipal Securities Rulemaking Board showed firming.
Bonds from an interdealer trade of New York Liberty Development Corp. 5s of 2041 yielded 4.21%, eight basis points lower than where they traded last week.
A dealer bought from a customer New York City Municipal Finance Authority 5s of 2044 at 4.13%, four basis points lower than where they traded last week.
A dealer sold to a customer Virginia Public School Authority 5s of 2022 at 2.26%, two basis points lower than where they traded the previous week.
Bonds from an interdealer trade of Detroit Water Supply 5.25s of 2041 yielded 5.26%, two basis points lower than where they traded last week.
Looking forward to Thursday, the competitive market can expect $229 million Municipal Electric Authority of Georgia revenue bonds.
