NEW YORK — Demand in the municipal market secondary remains strong heading into Tuesday afternoon.
A budget deal has finally been reached in Washington, but falling muni yields have instead been taking their cues from plunging Treasury yields and light issuance.
Also, favorable ratios to Treasuries have poured fuel on the muni demand fire in the secondary market, traders have said.
Muni yields so far are dropping fast, according to the Municipal Market Data triple-A curve. Yields are flat to two basis points firmer at the front of the curve. They are two to six basis points lower for maturities from 2015 through 2017.
Fro maturities later than 2017, yields are six to eight basis points lower. This could be read to mean that the 10-year benchmark muni yield has fallen up to eight basis points crossing into the afternoon
“We’ve seen great deal of demand from both the dealer and the customer base,” said a trader in Florida. “We’re trying to get a handle, as a community, on what the calendar will look like for the next couple of weeks. But at this point, no one’s worried about it, especially if you look at some of the prices being traded today.”
Muni yields plunged across most of the curve Monday. Two-year yields were stuck at a calendar-year low of 0.40%. The 10-year yield pushed four basis points lower to 2.63%. The 30-year yield dropped six basis points to 4.29%
The debt ceiling and budget crisis may be starting to come to a close, as the Senate votes on a deal this afternoon, but growing fears of the economy across the globe continue to sustain a significant rally in Treasuries. Munis have seen a drop, as well. This has made tax-exempt valuations particularly attractive, by comparison.
The benchmark 10-year Treasury yield continues to hit new calendar-year lows. Heading into the afternoon, it has reached 2.68%, more than one percentage point off its high for 2011 — at 3.72% on Feb. 8, according to MMD. It has fallen eight basis points since Monday’s close.
The two-year Treasury shed three basis points to 0.35%, one basis point above its nadir.
The 30-year yield dropped eight basis points to 4.01%. It stands 75 basis points from its high for the year, at 4.76% in Feb. 10.
For new issuance this week, the market predicts $3.25 billion in new volume. It is expected to be lower than last week’s revised $4.6 billion.
“The trend will continue into Wednesday, and maybe Thursday,” the trader said. “But we still have to get over one important hurdle: the unemployment data on Friday.”
