NEW YORK – The tax-exempt market was weaker Monday afternoon and secondary trading activity stalled as buyers wait to see how new issues are priced.
“Items that had 20 bids two weeks ago now have five,” a New York trader said. “The entire market seems to be driven off of how well these new issues are received. There is a lot of money headed toward a more confident equity market, and it should be interesting to see how rates in general react.”
Munis were slightly weaker Monday afternoon, according to the Municipal Market Data scale. Yields inside three years were flat while the four-year yield rose one basis point. The five-year yield jumped between one and three basis points while the six-year yield rose up to two basis points. Outside seven years, yields increased up to one basis point.
On Friday, the two-year yield closed two basis points higher at 0.36% while the 10-year yield jumped five basis points to finish at 2.26%. The 30-year yield increased four basis points to 3.44%.
Treasuries were weaker across the curve. The two-year yield rose one basis point to 0.39% while the 30-year yield jumped six basis points to 3.46%. The benchmark 10-year yield spiked up seven basis points to 2.36%.
In the primary market, JPMorgan priced for retail $521 million of San Antonio taxable electric and gas systems revenue bonds, rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings. Pricing details were not yet available.
Muni-to-Treasury ratios fell as munis outperform Treasuries and became relatively more expensive. Since munis began weakening last Tuesday, the five-year ratio fell to 84.7% from 86.8% at the start of the week. The 10-year ratio fell to 98.7% from 99.5%. The 30-year ratio fell to 101.2% from 103.8%.
Since the beginning of the year, the short- and long-end of the curve has become very expensive. The five-year ratio started the year out at 98.9% while the 30-year ratio opened at 119.4%. The 10-year ratio is around the same level as it was in the beginning of the year at 96.4%.
Despite rising rates, the 10- to 30-year slope of the curve has continued to collapse as investors go further out in search for yield. Last week, the slope fell to 114 basis points from 127 basis points the week prior. The slope has compressed from 169 basis points at the beginning of the year.
Investors have also moved down the credit curve in search for yield. Triple-A to single-A credit spreads have compressed across the curve. The two-year triple-A to single-A spread fell to 39 basis points from 43 basis points the week prior. The 10-year triple-A to single-A credit spread fell to 80 basis points from 86 basis points the week prior. The 30-year spread held steady at 80 basis points.
