NEW YORK – The tax-exempt market was showing signs of weakening Friday afternoon as most traders closed up early for the three-day weekend.
“Friday is essentially a half day,” a Chicago trader said. “There is nothing going on besides what customers are compelling you to do. It’s weaker because there are less people here.”
He added, “supply is going to dictate what goes on in the market next week.”
“Deals are priced to clear the market and you feel that effect. But the way to make money is to have something that’s unique and distinct,” he added.
Overall for the week, the trader said institutional buyers were active, but retail, with buyers looking for blocks under $2 million, is a little slower. “That’s a little slower moving stream than the institutional block business,” the trader said.
“Absolute rates are still hard for the ultimate individual investor to accept relative to stocks and the perception of stocks,” he added. “I think greed has gotten out in front of fear in terms of the investor psyche and when that happens, 2% in 10 years doesn’t get anyone excited. I think investors think they should be putting chips on faster horses than on good old muni bonds.”
However, this trader said he is still doing business with callable structures, and cheaper-priced smaller negotiated loans. “There is still some money being put to work but if someone comes in and they have an order for 415 bonds out of 500, it’s an order and you’ll fill it. But there is no trader behind that deal taking them all.”
Munis were slightly weaker Friday early afternoon, according to the Municipal Market Data scale.
On Thursday, the two-year yield fell three basis points to 0.26%, setting a record low as recorded by MMD. The previous record of 0.29% was set Feb. 7. The 10-year yield fell one basis point to 1.82%. The 30-year yield rose one basis point to 3.22%.
Treasuries were weaker. The benchmark 10-year and the 30-year yields rose three basis points each to 2.02% and 3.17%, respectively. The two-year was steady at 0.30%.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming over the past week.
Bonds from an interdealer trade of Los Angeles Unified School District 5s of 2030 yielded 2.66%, 12 basis points lower than where they traded the week before.
A dealer sold to a customer Dormitory Authority of the State of New York 4.375s of 2034 at 3.72%, 12 basis points lower than where they traded earlier in the week.
A dealer bought from a customer Chicago Board of Education 5s of 2041 at 4.01%, 11 basis points lower than where they traded earlier in the week.
Another dealer bought from a customer New York City Municipal Water Finance Authority 5s of 2044 at 3.80%, six basis points lower than where they traded a few days prior.
Throughout the week, muni-to-Treasury ratios fell as munis outperformed and became more expensive. The five-year ratio fell to 75.6% on Thursday from 82.5% the week before. The 10-year muni-to-Treasury ratio dropped to 91.5% from 93.4%. The 30-year ratio fell to 102.5% from 104.8% the week prior.
Looking ahead to next week, the municipal market can expect $5.2 billion of new issuance, down from this week’s revised $6.3 billion. On the negotiated calendar, $4.1 billion is expected to be priced, down from this week’s revised $5.6 billion. In competitive deals, $1.1 billion is expected, up from this week’s revised $668.1 million.
