NEW YORK – The tax-exempt market was mixed Friday afternoon as traders said they were confused by this week’s activity. The market started the week out very firm, and then started to weaken Thursday. On Friday afternoon, traders still did not have a consensus about the tone of the market.
“It almost feels like a false bounce and a touch fabricated,” a Chicago trader said about the big rally earlier this week. “It seems suspect. There was a grab fest earlier in the week and then people wanted to sell and couldn’t. A lot of people are still questioning where we are at and this is one of the hardest environments I’ve ever seen.”
He added that yield compression and yields trading record lows for so long has made trading difficult. “Fortunately the yield curve is steep enough where you can make some money.”
In the primary market, the trader said new deals this week went well and next week should do fine too, despite heightened supply. “There is a huge demand for yield and there is demand for anything different than the six or seven names we see in the street every day.”
Munis were narrowly mixed Friday afternoon, according to the Municipal Market Data scale. Yields inside three years were steady, while the four-year yield fell one basis point. The five- to seven-year yields were flat while yields outside eight years rose one basis point.
On Thursday, the two-year yield finished steady at 0.36% for its ninth consecutive trading session and the 30-year finished flat at 3.37%. The 10-year yield rose one basis point to 2.09%.
Treasuries were stronger in the morning, but weaker in the afternoon. The benchmark 10-year yield rose one basis point to 2.18% while the 30-year yield jumped two basis points to 3.30%. The two-year was flat at 0.34%.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening over the past weeks and month.
A dealer sold to a customer New Mexico Hospital Equipment Loan Council 5s of 2039 at 4.20%, 39 basis points higher than where they traded two weeks before.
A dealer bought from a customer Utah 5s of 2016 at 0.85%, 28 basis points higher than where they traded earlier in March.
A dealer sold to a customer Alabama Public School and College Authority 5s of 2022 at 2.48%, 11 basis points higher than where they traded earlier in March.
A dealer bought from a customer Los Angeles Unified School District 4.5s of 2024 at 2.90%, one basis point higher than where they traded earlier in the week.
Looking to next week, the tax-exempt market can expect $5.78 billion in bonds, up from this week’s revised $4.34 billion. On the negotiated calendar, $4.06 billion is expected, up from this week’s revised $3.49 billion. In competitive deals, $1.72 billion is expected next week, up from this week’s revised $849.2 million.