NEW YORK – The tax-exempt market looks positive for the next month as traders look to January redemptions to keep demand strong.
“As long as [Treasuries] stay where they are and we don’t get huge supply coming in, all indicators point to positive moving forward over the next month to six weeks,” a trader in Los Angeles said. “You’ve got January redemptions and as long as there are no surprises, we’ll be in good shape.”
By Thursday afternoon, it was “definitely slower,” he said. “It is clearly winding down. Maybe there were too many holiday parties this week.” He added there was “some activity early, but its pretty much gotten quiet over the past hour.”
“It it’s going to be exciting, it’s not going to be in the bond market today,” he said.
Munis were flat to slightly firmer, according to the Municipal Market Data scale. Yields inside seven years were flat, while yields between eight years and 29 years fell one basis point. The 30-year yield dropped two basis points.
On Wednesday, the two-year yield closed flat at 0.36% for its eleventh consecutive trading session. The 10-year muni yield increased one basis point to 1.93%, from the record low as recorded by MMD Monday. The 30-year muni yield increased two basis points to 3.64%.
Treasuries gave up gains from morning trading, putting them back at yesterday’s level. The two-year was flat at 0.28%. The benchmark 10-year yield was flat at 1.97% and the 30-year yield was steady at 3.00%.
The Securities Industry and Financial Markets Association recommended an early close of 2 p.m., Eastern time, for bond trading on Friday and a full close on Dec. 26.
The secondary market upstaged the primary market Thursday. Trades reported by the Municipal Securities Rulemaking Board showed firming.
A dealer sold to a customer New Jersey Transportation Trust Fund Authority 5.754s of 2028 at 4.96%, 13 basis points lower than where they traded Tuesday.
A dealer bought from a customer Massachusetts School Building Authority 5s of 2041 at 4.00%, four basis points lower than where they traded Tuesday.
A dealer sold to a customer New York City Municipal Water Finance Authority 5s of 2034 at 3.90%, three basis points lower than where they traded Tuesday.
A dealer bought from a customer Washington 5s of 2041 at 4.01%, three basis points lower than where they traded Wednesday.
Munis have been able to hold mostly steady despite a big sell-off in Treasuries. On Wednesday, the five-year and 10-year muni-to-Treasury ratios both closed below 100%. The five-year ratio closed at 98.9%, down from 113.8% on Monday. The 10-year ratio closed at 98%, down from 106.7% on Monday. The 30-year muni-to-Treasury ratio closed down to 121.3% from 129.4%.
