NEW YORK – The tax-exempt market seems to be on better footing Friday morning after five consecutive days of flat or weakening munis.
“Our market was mostly unchanged, although I did hit some down bids,” a Texas trader said. “But it was a good sign that there was a bid to hit.”
Munis were steady to firmer Friday morning, according to the Municipal Market Data scale. Yields inside 19 years were steady, while yields outside 20 years fell up to two basis points.
On Thursday, the two-year yield ended steady at 0.26%, its record low as recorded by MMD on Feb. 16. The 10-year and 30-year yields finished flat at 1.88% and 3.27%, respectively.
Treasuries were stronger Friday. The benchmark 10-year yield fell one basis point to 1.98% while the 30-year yield dropped two basis points to 3.11%. The two-year was steady at 0.31%.
With five consecutive days of flat to weaker munis, muni-to-Treasury ratios have risen as munis underperformed Treasuries and became cheaper. Since munis started weakening last Friday, the five-year ratio has risen to 77.3% on Thursday from 75.6%. The 10-year ratio jumped to 94.9% from 91.5%. The 30-year muni-to-Treasury ratio increased to 104.5% from 102.5%.
The 10- to 30-year slope of the curve fell slightly to 139 basis points on Thursday from 140 basis points last Friday.
Spreads have also tightened across the credit spectrum. The spreads on the two-year triple-A to single-A munis tightened to 44 basis points on Wednesday from 56 basis points at the beginning of the year as investors reached further out on the curve for yield. The spread on the 10-year triple-A to single-A munis fell to 89 basis points from 96 basis points. Similarly, the 30-year triple-A to single-A spread compressed to 83 basis points from 89 basis points at the beginning of the year.
In economic news, sales of new single-family houses fell 0.9% to 321,000 in January. The drop still beat the 315,000 median annual rate expected by analysts.
“While new home sales have trended higher over the last three months, the improvement is more modest than that seen in existing home sales, housing starts, and homebuilder sentiment,” wrote economists at RDQ Economics. “New home sales continue to do little more than bounce around at low levels.”
