NEW YORK – After rallying Friday morning on negative news from Greece, the tax-exempt market was holding steady in the afternoon.
“It’s kind of a slow day in muniland,” a trader in New York said. “I’m seeing the same old stuff from yesterday. It’s a quiet Friday.”
He added that throughout the week, everyone has been waiting for new issues to come and “loosen things up a bit.”
“The secondary market is quiet but anything that is high quality is pricey,” he said, adding triple-A rated Tennessee deals are “always a riot. And if [next week’s $385 million sales is] anything but a riot, run for the hills.”
The Municipal Market Data scale was not updated by press time. But Friday morning, yields inside four years were steady while yields outside five years fell as much as four basis points across the curve.
On Thursday, the two-year held steady at 0.29%, its record low as recorded by MMD on Tuesday. The previous record of 0.30% was set Aug. 10. The 10-year yield rose two basis point to 1.87% while the 30-year yield jumped four basis points to 3.29%. The losses erased all gains made since Jan. 25.
Treasuries continued to gain Friday afternoon. The benchmark 10-year and 30-year yields fell six basis points each to 1.98% and 3.14%, respectively. The two-year was steady at 0.28%.
In the secondary market, traders reported by the Municipal Securities Rulemaking Board showed gains on Friday.
Bonds from an interdealer trade of Oregon 5.762s of 2023 yielded 3.28%, nine basis points lower than where they traded Thursday.
A dealer bought from a customer Guam 5.125s of 2027 at 5.31%, five basis points lower than where they traded Thursday.
A dealer sold to a customer Golden State Tobacco Securitization Corp. 4.5s of 2027 at 6.35%, four basis points lower than where they traded Thursday.
A dealer bought from a customer Los Angeles Unified School District 5s of 2030 at 2.81%, three basis points lower than where they traded Thursday.
So far this year, the 10- to 30-year slope of the muni curve has flattened to 142 basis points on Thursday from 169 basis points at the start of the year. This is in stark contrast to the Treasury slope which has steepened, according to MMD’s Daniel Berger.
“In general, although the muni and Treasury markets still have a high correlation they have become more decoupled since the beginning of this year,” he said, adding that the Treasury 10- to 30-year yield curve has steepened to 115 basis points on Thursday from 101 basis points at the end of 2011.
“We believe this muni outperformance is seasonal in nature and attributable to high January reinvestment demand and low supply. We should see munis revert back to a more correlated performance to treasuries as the calendar of muni deals builds up and reinvestment needs are filled.”
Looking ahead to next week, the municipal market can expect $5.2 billion in new supply, up from this week’s revised $4.1 billion. On the negotiated calendar, $4.5 billion is expected to come to market, up from this week’s $3 billion. In competitive deals, $661.1 million is expected to be priced, down from this week’s $1.2 billion.
