NEW YORK – Following Wednesday, the tax-exempt market seems confused Thursday.
“It’s weird – some people are really busy and others are dead,” a New York trader said. “It’s not really a strong market right now. But, we are definitely seeing some aggressive counters.”
Munis were steady to firmer, according to the Municipal Market Data scale. Yields on the two- to seven-year fell as much as two basis points while yields outside eight years were flat.
On Wednesday, the two-year MMD yield closed at 0.30%, matching its record low set Oct. 10. The 10-year closed steady at 1.68%, one basis point higher than its low of 1.67% set Jan. 18. The 30-year yield rose to three basis points to 3.17%, closing above its record low of 3.14% set Tuesday.
Treasuries were mixed with yields on the short end rising and yields on the long end falling. The two-year yield rose one basis point to 0.24%. The benchmark 10-year yield fell two basis points to 1.83% while the 30-year yield dropped one basis point to 3.01%.
The primary market was quiet Thursday as most deals were pushed up a day early to Wednesday.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board were mixed, with the majority of the trades showing firming.
Bonds from an interdealer trade of Nebraska Public Power District 5s of 2031 yielded 3.12%, six basis points lower than where they traded Wednesday.
A dealer bought from a customer Municipal Electric Authority of Georgia 6.637s of 2057 at 5.66%, six basis points lower than where they traded Wednesday.
A dealer sold to a customer New York City Municipal Water Finance Authority 5s of 2044 at 3.67%, one basis point lower than where they traded Wednesday.
Muni-to-Treasury ratios have fallen this week as munis outperformed Treasuries. The five-year ratio closed at 93.2% on Wednesday, down from 97.3% on Monday. The 10-year ratio fell to 91.3% from 92.4% and the 30-year ratio dropped to 105.3% from 106% on Monday.
The slope of the curve steepened so far this week to 149 basis points, up from 146 basis points on Monday. The slope is still relatively flat compared to the beginning of the year when it was at 169 basis points.
When comparing the slope to the one-year and three-year averages, the slope is fairly steep, according to John Hallacy, municipal research strategist at Bank of America Merrill Lynch, but he doesn’t expect it to flatten anytime soon. “Muni rates are likely to stay within current ranges for the next few weeks until we get a meaningful pickup in supply.”
Munis had an “impressive” January, returning 1.71% as of Jan. 25, according to the Bank of America Merrill Lynch U.S. Municipal Master Index. Treasuries returned a negative 0.446% for the same time period.
The long end of the curve did far better than the short end. As of Jan. 25, munis outside 22 years returned 2.637% followed by 12- to 22-year maturities which returned 2.344%. The seven- to 12-year index returned 0.985% while the three- to seven-year index returned 0.585%. Munis inside three years returned only 0.209%.
Hallacy added that analyzing returns by municipal ratings showed the BBB category had the best return for the month at 2.375%.
