NEW YORK – The tax-exempt market was flat Friday morning after a steady session Thursday as traders will wait for next week’s new issuance before making any moves.
Munis were steady Friday morning, according to the Municipal Market Data scale. On Thursday, the two-year yield closed flat at 0.31% for the seventh consecutive trading session while the 30-year ended flat at 3.25% for the fourth consecutive trading session. The 10-year yield finished at 1.87%.
Treasuries were mostly steady Friday morning. The two-year yield was flat at 0.27% while the benchmark 10-year yield was steady at 1.95%. The 30-year yield rose one basis point to 3.13%.
During April, muni-to-Treasury ratios rose on the short end and long end as munis underperformed and became relatively cheaper. The five-year muni yield to Treasury yield rose to 97.6% from 96.1% on the first day of trading in April. The 30-year ratio jumped to 103.8% from 101.5% at the beginning of April.
The 10-year muni-to-Treasury ratio fell slightly to 95.9% from 96.8% in early April as munis outperformed Treasuries and became comparatively more expensive.
The slope of the yield curve fell during April to 305 basis points from 321 basis points as investors moved further out on the curve in search for yield. The 10- to 30-year slope of the curve increased to 138 basis points from 126 basis points as buyers showed more interested in the belly of the curve than on the long end.
Triple-A to single-A credit spreads show investors are more willing to slip down the credit scale on the short end and long end but prefer high-grade bonds in the belly of the curve.
The two-year triple-A to single-A spread remained at 39 basis points during April while the five-year spread fell to 62 basis points from 67 basis points at the beginning of the month.
Further out on the curve, investors were also willing to move down the credit scale. The 30-year triple-A to single-A spread fell to 76 basis points from 78 basis points at the beginning of the month.
But in the belly of the curve, investors moved out of the higher-yielding bonds into high-grade. The 10-year triple-A to single-A spread jumped to 81 basis points from 78 basis points at the start of April.
In economic news, real gross domestic product increased at an annual rate of 2.2% in the first quarter. The advance estimate of 2.2% fell short of the 2.5% that economists had projected.
“Although the economy continued to expand in the first quarter, the GDP data at face value are disappointing but also puzzling,” wrote economists at RDQ Economics. “We must remember that these data are revision prone and we also believe that the expenditure estimate of GDP has systematically understated the strength of the recovery. Our focus will remain on job creation, profits, and industrial production as giving the best guide to the pace of growth and the direction of the economy and we still look for growth of 3% this year. There will be many, however, who will disagree with this view and see this report as evidence that the economy continues to struggle.”
