NEW YORK — The municipal market Wednesday is seeing decent follow-through from Tuesday’s strong trading session. Traders say they continue to see some large blocks from customers on the offer side who are trying to take advantage of the recent run-up.
“Dealers and customers here are stepping in order to get invested with the reinvestment that’s ongoing at this point,” a trader from New York said. “That’s outstripping the new issuance supply. We’re also seeing continued strength from yesterday and out-performance on Treasuries.”
Muni yields continue to fall to start Wednesday’s session, according to the Municipal Market Data scale. There was no read, as yet, through 2015. Beyond four years, they are three to five basis points firmer.
The benchmark 10-year yield plunged 10 basis points Tuesday to 2.07%. This lowered its ratio to Treasuries to 99.51% from 106.37%, putting it below 100% for the first time since Aug. 24. It now sits closer to the 2011 calendar-year average of 97.24%.
The two-year yield held steady at 0.39% for a fourth consecutive session. The 30-year yield dropped five basis points to 3.76%.
While muni yields continue their downward trajectory, those for Treasuries are mixed. The benchmark 10-year yield has inched down one basis point to 2.07%.
The two-year yield is flat at 0.26%. The 30-year yield has risen two basis points to 3.10%.
For the week, investors have taken December reinvestment money, estimated by some to be around $20 billion, and have been buying up as much as they can find in both the primary and secondary markets. As is typical of this time of year, primary supply should dry up for the weeks close to the holiday season and the first couple of weeks in January, when more reinvestment money will require allocation.
In the face of this demand and shrinking supply, muni bonds have moved and prices have risen.
Primary market volume is expected to hover around the $6 billion range this week. Industry estimates for anticipated market volume total $5.82 billion, versus a revised $5.88 billion last week.
No particularly large bond deals are expected. Much of the week’s supply has already arrived and been absorbed into the marketplace, with little left over.
In economic news, mortgage applications rose 12.8% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ended Dec. 2. The previous week’s number included the Thanksgiving holiday.
The refinance index jumped 15.3%; the purchase index increased 8.3%. Emerging from the Thanksgiving holiday, applications rose significantly as mortgage rates dropped to their lowest levels in roughly two months, Michael Fratantoni, MBA’s vice president of research and economics, said in a statement.
Refinance applications climbed sharply, with some lenders seeing refinance volume double, Fratantoni said in a statement. Yet in spite of the surge, he added, aggregate refinance activity falls below levels reported two weeks ago.
