NEW YORK – The tax-exempt market is stronger Thursday afternoon as traders take advantage of the flight to safety led by Treasuries before the holiday weekend begins.
“The market is feeling better,” a Chicago trader said. “I’m not sure it’s as good as some of the bumps on the Municipal Market Data scale are showing but the trades that happened earlier today were strong. If it is that strong, I need to mark up my paper and I’d be happy to sell it going into the weekend.”
That said, the trader said he is seeing yields fall one to two basis points, but not any more than that. “The high end stuff is selling more aggressively, but I did see some new issue stuff trading behind where it came in Wednesday. And granted, it wasn’t the best of names, but it wasn’t the worst either.”
Munis were stronger Thursday afternoon, according to the MMD scale. Yields inside two years were steady while the three- to five year yields fell up to two basis points. The six- to 12-year yield dropped between two and four basis points while yields outside 13 years fell two basis points.
On Wednesday, the two-year yield finished steady at 0.36% for its 13th consecutive trading session while the 10-year yield and 30-year yield also finished flat at 2.16% and 3.42%.
Treasuries continued to strengthen. The benchmark 10-year yield fell four basis points to 2.20% while the 30-year yield dropped three basis points to 3.34%. The two-year was steady at 0.35%.
Over the past week, muni-to-Treasury ratios fell as munis outperformed Treasuries and became comparatively more expensive. The five-year muni yield to Treasury yield fell to 93.3% from 97% the week prior while the 30-year ratio dropped to 101.2% from 103.1%. The 10-year ratio fell slightly to 96.4% from 96.8% the week before.
Over the course of April, the slope of the yield curve has flattened. The 10- to 30-year slope fell to 126 basis points from 128 basis points at the end of March. And while the long-end of the curve has flattened, the entire slope has steepened in April with the one- to 30-year slope increasing to 324 basis points from 321 basis points at the end of March.
With general market consensus showing that rates are expected to stay low for an extended period of time, muni participants are moving down in the credit scale to reach for yield. Spreads between triple-A and single-A credits have compressed across the curve since the beginning of the year.
The two-year triple-A to single-A spread plummeted to 39 basis points from 56 basis points at the beginning of the year. The 10-year spread dropped to 78 basis points from 96 basis points in January. The 30-year triple-A to single-A spread fell to 78 basis points from 89 basis points.
Looking to next week, the tax-exempt market can expect $7.68 billion in new issuance, up from this week’s revised $5.12 billion. On the negotiated calendar, $6.16 billion is expected, up from this week’s revised $3.22 billion. In competitive deals, $1.52 billion is expected, up from this week’s revised $1.9 billion.