NEW YORK – Traders are sitting on their hands Tuesday afternoon preferring to keep bonds rather than give them up cheaply.
“Some people are wanting to buy but their bids are too low, so we’re sitting tight and just watching,” said a trader in New Mexico. Besides that, “there is not a whole lot happening. It’s really quiet.”
The Municipal Market Data scale was not updated by press time but yields were flat across the curve Tuesday morning.
On Friday, the two-year yield closed flat at 0.36% for its 13th consecutive trading session. The benchmark 10-year yield held at a record low 1.91%, as recorded by MMD. The 30-year muni yield inched up one basis point to 3.63%.
Treasuries were mixed with weakening on the short end and firming on the long end. The two-year yield rose one basis points to 0.30%. The benchmark 10-year yield and 30-year yield fell one basis point each to 2.02% and 3.05%, respectively.
In the primary market this week, the negotiated calendar is empty, with no deals scheduled for an expected quiet week between Christmas and New Year’s. The competitive calendar expects a paltry $5.9 million in new long-term issuance.
Muni-to-Treasury ratios finished down for the week, with the five-year and 10-year ratio closing below 100%. The five-year finished at 92.9% and the 10-year closed at 94.1% last Friday. The 30-year ratio finished down for the week, but still above 100% at 119.2%.
“Lack of new issues and strong demand are pushing munis to outperform Treasuries as the year comes to a close,” wrote Alan Schankel, managing director at Janney Capital Markets, adding “there is nothing on the horizon this week to change that calculus.”
In the week ending Dec. 21, muni bond funds saw roughly $764 million of inflows from funds that report their flows weekly, according to Lipper FMI, a decent number despite the significant drop in yields.
“This was in sharp contrast to this time last year when Meredith Whitney predicted hundreds of billions in muni defaults,” wrote MMD’s Randy Smolik. “Throughout December of 2010, muni bond funds saw week after week of hefty withdraws. Little wonder why some may recall how lackluster January customer demand was.”
