NEW YORK — Municipal bond investors are hearing the sounds of silence. As politicians in Washington are making a late push to resolve the debt-ceiling and budget crisis, investors are ignoring favorable muni ratios to Treasuries, particularly at the 10-year mark, while limiting their markets activities Monday.
“It’s due to the fact that the stock market didn’t have the rally people thought it would when Congress appeared to reach an agreement,” a trader in New Jersey said. “We’re at a point now whatever the stocks do, we’re going to do the opposite. It’s surprising to me because, one would think if there was any chance of a downgrade on the U.S. Treasury, Treasuries would be selling off.”
They’re not.
Also, the 10-year muni-Treasury ratio, around noon at 97.4%, is at its most favorable level since the last day in January, according to Municipal Market Data numbers. It’s far cheaper against Treasuries than its average for 2011, at roughly 90.3%.
This may not interest the average retail investor. But it’s also not generating any more activity among those institutions that pay close attention to ratios.
Muni yields, for their part, continue to fall heading into the afternoon, according to the Municipal Market Data triple-A curve. Yields were flat to two basis points firmer at the front of the curve. They were one to four basis points lower across the rest of the curve.
Muni yields fell Friday, in spite of an overall lack of trading. While two-year yields were stuck at a calendar-year low of 0.40%, the 10-year yield was driven three basis points lower to 2.67%. The 30-year yield shed two basis points to 4.35%
The debt ceiling and budget crisis instigated a massive rally in Treasuries at the end of last week. This made tax-exempt valuations particularly attractive, leading to falling yields.
After plunging 16 basis points on Friday to its lowest closing yield for 2011, the benchmark Treasury 10-year yield continued its downward course to start the week. At one point at mid-morning, it touched 2.72%. It rose slightly, settling nine basis points below Friday’s close, at 2.73%.
The two-year Treasury inched up one basis point to 0.37%. The 30-year yield jumped three basis points in the morning, only to plummet 10 basis points to 4.06 by the start of the afternoon.
The market predicts $3.25 billion in new volume this week. While this shows that market appetite will likely transcend the federal government showdown regarding its solution to the debt limit, participants have said the crisis could affect the calendar. On its own, issuance is expected to be lower than last week’s revised $4.6 billion.
