NEW YORK — It’s been a difficult week for new issuance in the municipal market.
The new supply has required sometimes large concessions to benchmark scales to get investors interested. But there have been some points of note, according to Municipal Market Data analyst Daniel Berger.
For one, some dealers want to work down positions, and were willing to be aggressive in seeking orders.
“One constructive development from [Thursday’s] trading was that more bonds were getting distributed out of Street hands,” Berger wrote in a morning research post. “Buyers may be developing an appetite now that some sectors of the curve have retraced to significant levels for this year’s ranges.”
Tax-exempt yields started the morning weaker, once again around the 10-year range but also the long end, according to the Municipal Market Data scale. The yield curve continues to flatten along the way. At press time, there wasn’t a read out to two years.
Yields are two to five basis points weaker from three to six years. Those for the seven- to 10-year range are up five to seven basis points. Beyond 10 years they are three to five basis points higher.
The 10-year muni yield leapt 11 basis points Thursday to 2.55%, after surging 15 basis points Wednesday. It has risen 58 basis points from its record-low yield of 1.97% on Sept. 23.
The 30-year yield jumped eight basis points in the day’s session to 3.70%. It had increased the same amount in the previous day’s session. The two-year yield rose two basis points to 0.41%.
Treasury yields have started the day mostly higher, once again. The benchmark 10-year Treasury yield has risen seven basis points on the morning to 2.07%.
The 30-year yield has been moving roughly in line with the 10-year, of late. It also has climbed seven basis points to 3.03%.
The two-year yield so far remains at 0.28%.
The industry expects volume to decline over the coming holiday-shortened week. Roughly $6.93 billion is anticipated next week, after $8.23 billion this past week.
The volatility and uncertainty in the bond markets have caught up with muni bond fund investor behavior. Consequently, muni bond mutual funds saw outflows, after four straight weeks of inflows.
The week ending Oct. 5 saw $113 million in outflows from muni bond funds that report their flows weekly, according to Lipper FMI. In the week ended Sept. 28, there were net inflows of almost $600 million.
High-yield muni funds also saw their first outflows in five weeks. Funds that report weekly saw outflows of $70 million, Lipper said. The previous week, high-yield funds reported inflows of $37 million.
During the past couple of weeks, the market experienced dramatic shifts in yields in response to the Federal Open Market Committee’s decision to initiate Operation Twist. Also, this past week’s surge in large deals, which flooded the primary market, was poorly absorbed, leaving the muni market with a generally weaker tone, traders said. With slower growth and, once more, whipsawing yields, along with rising uncertainty over muni’s tax-exempt status for the long term, investors might have grown discouraged about muni funds again.
In economic news, the Department of Labor reported that non-farm payrolls rose 103,000 in September and the unemployment rate remained at 9.1%, not indicative of an improving economy. The 103,000 rise included 45,000 returnees from a telecommunications strike in August.
Private payrolls in September rose by 137,000. This followed a gain of 42,000 for August.
