NEW YORK – The tax-exempt market is in flux as traders wait and see what happens with no big deals and no clear direction coming from Treasuries.
“The market is drifting a little bit,” said a trader in New York. “There are no big deals so we are waiting to see what direction it takes.”
By Thursday afternoon, munis were continuing the sell-off in the middle to long end of the curve. Yields on credits in the belly of the curve rose up to two basis points, while yields on credits maturing in 2023 increased three basis points. Yields on credits between 2024 and 2033 jumped between two and four basis points and yields on credits beyond 2034 spiked up to five basis points.
On Wednesday, the two-year muni yield closed at 0.42% and the 10-year finished at 2.28%. The 30-year yielded 3.66%.
By early afternoon Thursday, Treasury yields on the long-end had fallen one basis point from where they opened this morning. The 10-year was still up five basis points from yesterday, at 2.05% and the 30-year was up six basis points from yesterday at 3.09%. The two-year was up one basis point to 0.25%.
“Bond markets were shaky over events in Greece but gained some composure after [European Central Bank’s] recession warning,” MMD analyst Randy Smolik said. “Munis showed weakness though trading has been erratic among quality bonds.”
In the negotiated market, Morgan Stanley priced $88.6 million of Kansas City, Mo., sanitary sewer system improvement refunding revenue bonds, rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.
Yields ranged from 0.20% with a 2% coupon in 2012 to 3.95% with a 5% coupon in 2037. The bonds are callable at par in 2021.
In the secondary market, upward drift in yields inside 10-years were contained to only a few basis points. “The markets were less defined the further one travels out the serial curve and into the dollar sector,” Smolik said. “Some names have nearly given up all the gains of the Tuesday rally.”
The five-year Treasury is the hot spot now, according to MMD. Analyst Daniel Berger noted the five-year muni-to-Treasury ratio closed at its highest level in more than two and a half years. “Clearly, an investor seeking value could archive outperformance by investing in the five-year range.”
The five-year muni-to-Treasury ratio closed at 133.7%. The 10-year ratio closed at 114% and the 30-year ratio was at 120.4%.
