NEW YORK – After a strong rally Monday, the tax-exempt market opened Tuesday steady as buyers waited for the primary market to provide direction.
“Munis are pretty steady,” a New York trader said, adding the market is being balanced out with similar numbers of buyers and sellers. “Munis are strong again this morning. Some people, however, are looking to take profit here.”
Munis were steady across the curve in Tuesday morning trading, according to the Municipal Market Data scale.
On Monday, the 10-year muni yield fell seven basis points to 1.70%, the lowest level since Jan. 18th when the 10-year muni yield set a record low at 1.67%. The 30-year yield also fell seven basis points to 3.16%, its lowest since the record 3.15% set Jan. 18. The two-year muni yield fell two basis points to 0.33%, its lowest since Sept. 27th.
Treasuries were mixed. The two-year yield rose one basis point to 0.23% while the benchmark 10-year yield fell one basis point to 1.84%. The 30-year was steady at 3.00%.
In the primary market, the biggest deal on the calendar is expected to come in the competitive market. Washington is expected to auction $960 million of general obligation bonds in two pricings: $700 million of various purpose GO refunding bonds and $260 million of motor vehicle fuel tax GO refunding bonds.
While the bonds are rated AA-plus by Fitch Ratings, the auction comes only days after the outlook was revised to negative from stable.
The revised outlook “reflects the challenges faced by the state in addressing a sizable budget gap,” wrote Laura Porter, managing director at Fitch. “The state is operating in an environment of significantly constrained revenue raising and spending control flexibility. Maintenance of the AA-plus rating will be contingent upon enactment of sustainable budgeting measures that provide an adequate cushion against future revenue underperformance.”
On the negotiated side, JPMorgan is expected to price for retail $234.5 million of Nebraska Public Power District general revenue bonds. The credit is rated A1 by Moody’s Investors Service, A by Standard & Poor’s, and A-plus by Fitch.
Munis have gotten cheaper on the short-end as muni-to-Treasury ratios on the five-year and 10-year have increased. Over the past week, the five-year ratio jumped to 98.7% from 91.2% and the 10-year ratio has risen to 93.7% from 90.8%. Ratios on the long-end have fallen as munis outperformed Treasuries. The 30-year muni-to-Treasury ratio fell to 105.6% from 107.3% the week prior.
The yield curve has fallen significantly in the past week. On Monday, the 10- to 30-year slope fell to 146 basis points from 150 basis points the week prior.