NEW YORK — The municipal market faces the arrival of a shipload of new deals Tuesday. But the yield curve seems to be of two minds: weakening at the short end and firming at the long end. Nevertheless, it is new issuance and not strengthening Treasuries that is pulling the muni cart, a trader in New York said.
“We’re on our own track,” he said. “Treasuries could rally big and munis would not follow, just because of all of the supply.”
There is little action in the secondary market, thus far; investors are leveling their sights on what the primary market brings. The new deals, though, may see restrained interest, the trader added.
“There [are] going to have to be [concessions] to get them all done,” he said of the week’s new deals. “It feels that way, but who knows. Sometimes guys wait for the new issuance and there’s more money than you think there is out there.”
Tax-exempt yields are mixed to start the day, but appear to be falling at the long end of the curve, according to the Municipal Market Data scale. They were steady through five years, between seven and 10 years, and between 13 and 20 years.
Around those ranges, they are flat to two basis points higher on the short end, and flat to three basis points lower at the long end.
The 10-year muni yield rose two basis points Monday to 2.24%. The 30-year and the two-year yields held steady on the day at 3.55% and 0.34%, respectively.
Treasury yields have mostly started the day a tad firmer. The benchmark 10-year Treasury yield has inched down one basis point to 1.76%.
The 30-year yield has also slipped one basis point to 2.73%. The two-year yield ticked up one basis point to 0.25%.
As muni yields have weakened, issuers have been active, according to Alan Schankel, of Janney Capital Markets. “As tax-free yields have begun to turn up,” he wrote in a recent research post, “issuers are pushing to lock in refunding deals, which accounted for about 50% of September’s $27.4 billion of new issues.
More new issuance, up to $8.26 billion, is expected for this week. Last week, the market saw a revised $7.69 billion in new supply.
Many new deals are expected on the day. In the largest deal anticipated in the competitive market, the Dormitory Authority of the State of New York is expected to sell $515.6 million of personal income tax general purpose revenue bonds in two separate issues.
The equities markets have more or less picked up where they left off from Monday’s close. The major indexes have started the day’s session down at least 0.61%. The Dow Jones Industrial Average is down 193 points so far.
