The tax-exempt market continued to weaken for the fifth session Friday. Traders said the market was cheapening, though many participants were hanging out on the sidelines waiting for the dust to settle after a tough few trading sessions.
"Today is still weaker," a New York trader said. "Thursday there was a very strong bid-wanted activity which added to people's fear of others coming out and selling large blocks of pretty much all different structures. So it's weaker today, but I think a lot of people have now moved to the sidelines to wait and see where things settle at this point."
Overall for the week, the trader said yields are up significantly on the long end. "It was a combination of a backup in Treasuries, very low rates already, and supply that all came in," he said. "Other factors were a ramp up of talk of uncertainty of tax exemption with the fiscal cliff."
After Moody's Investors Service downgraded Puerto Rico debt late Thursday afternoon, this trader said he isn't seeing a big fallout in trading. "Most of our clients were sidelined on Puerto Rico before the news came out yesterday."
On Thursday, yields on the Municipal Market Data scale jumped as much as six basis points and have increased as much as 20 basis points over the week.
The 10-year yield jumped four basis points Thursday to 1.66% and has risen 18 basis points over the course of the week. It now trades 19 basis points above the record low of 1.47% set Nov. 28.
The 30-year yield spiked up six basis points Thursday to 2.65% and has risen 17 basis points over the course of the week. It now trades 18 basis points above its record low of 2.47% set Nov. 28.
The two-year finished flat at 0.30% for the 54th consecutive trading session.
Treasuries were stronger Friday afternoon after three weaker consecutive trading sessions. The benchmark 10-year yield dropped four basis points to 1.70% while the 30-year yield plummeted five basis points to 2.86%. The two-year yield fell one basis point to 0.25%.
As munis cheapened throughout the week, trading activity and par value of bonds traded increased. According to data from the MSRB, 43,242 trades took place Monday, above the 30-day average of 36,535 trades. In par value, $8.584 billion trades took place, less than the 30-day average of $11.017 billion.
But those numbers increased as the week progressed. On Tuesday, 50,040 trades took place, up from the 30-day average of 37,903 trades. Almost $12 billion in par amount was traded, above the 30-day average of $11.309 billion.
On Wednesday, 51,855 trades occurred, up from the 30-day average of 39,620. Par amount traded was $15.389 billion, well above the 30-day average of $11.813 billion.
And by Thursday, 50,439 trades occurred, up from the 30-day average of 40,155. Par amount traded was $17.567 billion, up from the 30-day average of $12.096 billion.