NEW YORK — A strong rally in Treasuries has produced a minor rally in munis so far Friday. But more favorable ratios to Treasuries are setting the muni market up for a solid next week, as new issuance should increase.
Still the secondary market is performing on par for a summer Friday, a trader in California said.
“I’m not seeing a lot of bid-wanteds, retail or institutional,” he said. “But the market’s feeling a little bit better, which is understandable, given how strong Treasuries are.”
Muni yields are mostly lower across the curve. They remained steady for maturities in 2013 and 2014, according to the Municipal Market Data scale. But yields for the rest of the curve were flat to three basis points firmer.
Treasury yields dropped this morning following the release of the employment report and remain lower heading into the afternoon. The 10-year yield plunged 13 basis points from yesterday’s close to 3.02%.
The two-year yield fell eight basis points to 0.40%. The 30-year yield stumbled eight basis points to 4.30%.
Ratios are better today than they have been of late, the trader added. Heading into Friday afternoon, the 10-year muni yield, at 2.75%, stands against a Treasury yield of 3.01%, leading to a ratio of 91%, according to MMD. Yesterday, it was around 88%.
“Assuming that things hold where they are, we’re in good shape for next week,” the trader said. “One of the things that slowed us down was ratios have gotten rich.”
After the holiday blip, new issuance should return to June’s volume levels. Municipal bonds expected to be sold next week total $5.3 billion versus a revised $878.4 million this week. It averaged more than $5 billion a week for the month of June.
New issuance had been averaging $3 billion a week for most of the year. That’s down about 44% for the first half when compared with the same period in 2010.
“We’ll see how some issues get priced next week,” the trader said. “Cash has been sitting on the sidelines, waiting for a better opportunity. Maybe this will provide that better opportunity.”
