NEW YORK – The tax-exempt market continued to weaken Thursday afternoon as traders wait for more attractive yields, despite having cash to put to work.
“The market is definitely weaker again today,” a New York trader said. “It’s seems like demand is starting to pull off just a tiny bit from new issues, although there is still plenty of money out there.”
He added, “The secondary action is still slow but should pick up alongside higher new issue volume.”
The Municipal Market Data scale was not updated by press time. But in morning trading, munis were weaker. Yields inside five years were steady while six- to 20-year yields rose up to three basis points. Outside 21 years, yields jumped one and two basis points.
On Wednesday, the two-year yield ended flat at 0.26%, its record low first registered by MMD on Feb. 16. The 10-year yield jumped five basis points to 2.03%, the first time it has closed above 2.00% since Dec. 7. The 30-year yield rose one basis point to 3.30%.
Treasuries continued to weaken. The benchmark 10-year yield rose four basis points to 2.02% while the 30-year yield jumped five basis points to 3.17%. The two-year was steady at 0.31%.
In the primary market, Citi priced $320 million of Broward County, Fla., water and sewer bonds, rated Aa2 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings. Details were not available.
Wells Fargo priced $243.3 million of New York State Thruway Authority local highway and bridge contract bonds. Pricing details were not available by press time.
Citi priced $217 million of Kansas City, Mo., general obligation improvement and refunding bonds, rated Aa2 by Moody’s and AA by Standard & Poor’s. Prices were not available.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening.
A dealer sold to a customer Washington 5s of 2024 at 2.82%, 42 basis points higher than where they traded a week before.
Bonds from an interdealer trade of Clark County, Nev., airport revenue 5s of 2023 yielded 3.00%, 20 basis points higher than where they traded last week.
A dealer bought from a customer Maine Turnpike Authority 5s of 2028 at 3.11%, 13 basis points higher than where they traded last week.
Another dealer bought from a customer Texas 5.517s of 2039 at 3.91%, three basis points higher than where they traded last week.
Muni-to-Treasury ratios have risen as munis underperformed Treasuries and became cheaper. The five-year ratio jumped to 90.9% on Wednesday from 77.8% on March 1 when munis began weakening. The 10-year muni-to-Treasury ratio spiked to 102.4% on Wednesday from 93.6% at the beginning of the month. The 30-year ratio rose to 105.6% from 103.8%.
“On Tuesday, the 10-year ratio crossed 100% for the first time in more than ten weeks, or since Dec. 20, 2011,” said MMD’s Daniel Berger. “By Wednesday, ratios to treasuries in the 10-year range have turned tempting. Adjustments were now at significant technical retracements of the rally from October 2011.”
He added that in early October 2011, the triple-A 10-year peaked at 2.58%, and subsequently fell to 1.67% in mid-February. “A 38% retrace of this range is at 2.01%.”
The 10- to 30-year slope of the curve has also collapsed. On Wednesday, the slope closed at 127 basis points, down from 169 basis points at the beginning of the year. “This move has come almost completely from the 30-year range which has seen a bump of 27 basis points while the 10-year range has been cut 15 basis points,” Berger added.
