NEW YORK – The tax-exempt market appeared to be stronger for its fifth consecutive trading session as primary supply is limited this week. Some traders say if yields go much lower, the market could see another sell-off.
“It looks like a fifth day of rallying,” a New York trader said. “But we need rates to go higher to get more money for your bonds.”
He added if rates go much lower, “people would rather put money in equities to get more for their money.” As munis rally, volume will also continue to fall as people look to put their money to work elsewhere.
Munis were stronger, according to the Municipal Market Data scale. Yields inside five years were steady while six- to 12-year yields fell between three and six basis points. 13- and 14-year yields dropped two to four basis points. Outside 15-years yields were steady to a couple basis points lower.
On Monday, the two-year yield finished steady at 0.36% while the 30-year yield closed flat at 3.40%. The 10-year yield dropped three basis points to 2.14%.
Treasuries were stronger on the short end. The two-year yield and the benchmark 10-year yield each fell two basis points to 0.34% and 2.22%, respectively. The 30-year yield was steady at 3.32%.
In the primary market, Wells Fargo is expected to price for retail $200 million of Rochester, Minn., health care facilities revenue bonds for the Mayo Clinic. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.
Wells Fargo is also expected to price $123.2 million of Arizona Board of Regents tax-exempt and taxable bonds for the University of Arizona.
In the competitive market, Temple University, Pa., is expected to auction $120 million of short-term notes, rated M1G-1 by Moody’s.
Cobb County, Ga., is expected to auction for $98 million of short-term notes rated SP-1-plus by Standard & Poor’s.
Since munis started strengthening last Wednesday, muni-to-Treasury ratios rose as munis underperformed Treasuries and become comparatively cheaper. The five-year muni-to-Treasury ratio jumped to 93.6% from 85% last Tuesday. The 30-year ratio increased to 102.7% from 100.3% the week before.
The 10-year ratio fell slightly to 96.9% on Friday from 98.3% the week before as munis outperformed Treasuries and became comparatively more expensive.
The slope of the curve widened to 123 basis points from 118 basis points the week before. Over the course of last week, the slope collapsed to a 12-month low of 114 basis points before widening.
