NEW YORK — Muni yields are holding their own in the face of slackening Treasuries and relatively healthy equities.
A massive lack of supply has investors looking for value in the market wherever they can find it. Also, retail investors generally don’t want to have too much sitting in cash earning next to nothing, a trader in Texas said.
“The technicals are really in favor of prices increasing on municipals right now,” he said. “Even with our albeit extremely low levels, there’s just an overwhelming value against where Treasuries are.
Traders are in disagreement over whether investors are actually reaching with prices in the day’s session or not. The afternoon read on yields suggests they still are willing to pay up.
Tax-exempt yields are flat across the front end of the curve heading into the afternoon, according to the Municipal Market Data scale. For maturities in 2021 through 2028, yields are flat to one basis point lower. For those beyond 2028, they’re flat to two basis points lower.
The benchmark 10-year yield Tuesday fell seven basis points to 2.10%, a record low on MMD. It has fallen 14 points since Sept. 1.
The 30-year yield plunged eight basis points on the day to 3.70%, its lowest level since Sept. 29.
The two-year yield remained unchanged at 0.30% for a 19th consecutive session, holding at its lowest level in more than 40 years.
Treasury yields, which started the week with a rally, are mostly weakening on the day. The 10-year benchmark yield has risen four basis points to 2.02%, still incredibly low for the year.
The 30-year yield has increased eight basis points to 3.34%. The two-year yield, though, is unchanged 0.21%.
Though the week is shortened by the Labor Day holiday, new-issuance volume is still expected to be higher that last week’s. Industry estimates place the total for the week at almost $3 billion, versus a rather slight $1.72 billion last week. Most of the biggest deals are expected to reach the market later in the week.
Morgan Stanley priced $175 million of Cape Coral, Fla., water and sewer refunding revenue bonds. The bonds, which are wrapped by Assured Guaranty Municipal Corp., are rated A1 by Moody’s Investors Service, A-minus by Standard & Poor’s and A by Fitch Ratings.
Yields range from 0.69% with a 2.00% coupon in 2012 to 4.93% with a 5.00% coupon in 2041. Since repricing, yields are roughly three basis points firmer on the short end, seven basis points lower at the 10-year mark, and 12 basis points lower at the 20-year mark.
Piper Jaffray priced $87 million of Texas A&M University Board of Regents system permanent university fund bonds. The bonds are rated triple-A by the major ratings agencies.
Yields range from 0.40% with a 2.00% coupon in 2013 to 3.67% with a 5.00% coupon in 2031. Since repricing, yields have fallen three basis points in the medium and long-ends of the curve.
The deals are finding an investor group hungry for the right kind of value, the trader said. “Even the few large deals that come,” he said, “if they’re high grades, or appealing to crossover buyers, given where Treasuries are, they continue to take supply out of the market.”
The equities markets continue to see strong gains in all three major exchanges. They were up by at least 2.04%, with the Dow Jones Industrial Average up almost 228 points.
