NEW YORK – The tax-exempt market continues to remain quiet, as limited activity in the primary market provides no force for secondary trades.
“I’m not seeing a lot today,” a New York trader said. “It’s very quiet so far today. It’s like a Friday in the summertime, unfortunately.”
He added that he’s hoping new deals later this week will force activity to pick up, but if that last weeks have shown anything, it’s that traders aren’t participating right now. “I’m hoping for new deals this week but it has been a little quiet and last week was a little quiet. I’m hoping this will turn around soon.”
The Municipal Market Data scale was not updated by press time, but munis were steady in morning trading.
On Friday, the 10-year yield dropped four basis points to 1.83% while the 30-year yield fell three basis points to 3.26%. The two-year held steady at 0.29%, the record low set Tuesday.
Treasuries continued to sell off in the afternoon on positive news from Greece. The benchmark 10-year yield and the 30-year yield jumped four basis points each to 2.00% and 3.15%. The two-year yield rose one basis point to 0.29%.
In the competitive market, JPMorgan won the bid for $74 million of King County, Wash., short-term notes. The notes were priced to yield 0.14% and have a 2.5% coupon. The credit is rated M1G-1 by Moody’s Investors Service, SP-1-plus by Standard & Poor’s, and F1-plus by Fitch Ratings.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming.
A dealer sold to a customer New York City Municipal Water Finance Authority 5s of 2045 at 3.84%, five basis points lower than where they traded last Thursday.
Bonds from an interdealer trade of Oregon 5.762s of 2023 yielded 3.26%, two basis points lower than where they traded Friday.
Bonds from another interdealer trade of San Marcos, Calif., Public Facilities Authority 5s of 2038 yielded 3.67%, one basis point lower than where they traded Thursday.
A dealer sold to a customer New York Liberty Development Corp. 5s of 2041 at 3.90%, one basis point lower than where they traded Friday.
In the past week, muni-to-Treasury ratios have increased as munis underperformed Treasuries and became cheaper. On Friday, the 10-year ratio closed at 93.4%, up from 90.8% the previous week. The 30-year closed up to 104.8% from 102.2%. The five-year ratio fell significantly, closing down to 82.5% from 87.2% the previous week.
Compared to the 12-month average, MMD’s Daniel Berger said ratios have become rich. “Now is not the best time to be committing new money to the municipal bond market,” he said. “Heavy seasonal demand combined with a light municipal bond calendar has led to a ‘rich’ market where virtually every maturity is overvalued relative to recent historical averages to Treasuries.”
Berger added better entry points into the market may come along toward the end of the first quarter. “It is only after additional supply enters the market combined with a lower reinvestment demand that better values will be apparent,” he said.
