NEW YORK – The tax-exempt market appears to be ending on a strong note after a mixed week. Traders said the beginning of the week felt strong, but interest died out mid-week. A good sized upcoming calendar will help keep focus on the primary market.
“It’s been a weird week,” a Chicago trader said. “We had a couple of runs and then it was like, ‘where’s the bid? Where’s the beef?’ But now it looks like we are feeling a little bit better and getting more people engaged.”
He added this week and next week are seeing fairly decent sized calendar, which keeps traders focused on the new issue market.
Some of the weakening, however, can be attributed to tax time. “Traditionally tax time is a slow time,” he said. “And people think which assets do you need to pay taxes? But then it starts up again in May. June and July are also good rollover months.”
Munis were stronger Friday, according to the Municipal Market Data scale. Yields inside six years were steady while yields outside seven years fell up to three basis points.
On Thursday, the two-year yield closed steady at 0.33% for the fourth consecutive trading session. The 10-year yield jumped three basis points to 2.00% while the 30-year yield increased one basis point to 3.35%.
Treasuries gained in Friday afternoon trading. The two-year yield fell two basis points to 0.27% while the benchmark 10-year yield dropped six basis points to 2.00%. The 30-year yield plunged seven basis points to 3.15%.
Over the course of this week, muni-to-Treasury ratios increased as munis underperformed Treasuries and became comparatively cheaper. The five-year muni yield to Treasury yield rose to 97.8% from 96% at the end of last week. The 30-year ratio jumped to 104.4% from 103%. The 10-year ratio was virtually unchanged, falling to 97.6% from 97.7% last week.
And while the slope of the yield curve has flattened to 317 basis points from 324 basis points the week before, the 10- to 30-year slope has steepened to 135 basis points from 130 basis points at the end of last week.
Looking to next week’s primary market, $7.45 billion is expected to be issued, up from this week’s revised $6.43 billion. On the negotiated calendar, $5.13 billion is expected, up from this week’s revised $4.96 billion. In competitive offerings, $2.32 billion is expected to come to market, up from this week’s revised $1.47 billion.