Traders took a varied view of the municipal market Thursday.
While some secondary market traders reported seeing a decent amount of activity in the intermediate part of the muni curve throughout the day's session, others said they heard little more than crickets over the span.
"With no supply this week and Treasuries firm for pretty much the past two days, you're seeing spotty strength mainly in the belly," the trader said. "But outside of that, really, guys are trying to position for year end. There seems to be guys just filing stuff in a drawer until next year."
The 10-year muni ratio to Treasuries stands at 101%. But out to 12 years, it's at 111%, another trader in New York said. That area tends to be the cheapest part of the curve, right now, he said. Whereas, the long end is much richer.
"People are always attracted to those ranges," he said of the intermediate part of the curve. "To get something, in terms of yield, you have to look a lot these days. So, going a little bit longer for a retail account might be in order, because they're still worried about basic returns."
Others saw a different picture of the day's session. A trader in Los Angeles saw no real activity anywhere along the yield curve.
"There are a lot of retail spots that are selling to raise cash by the end of the year and doing tax planning and so forth," he said. "But really no news at all, and absolutely no change in the market. The bid side is extremely weak. But that's just because no customers are in and less than half the traders are in."
Trading may have been surprisingly busy or predictably quiet, but there were some matters on which market participants agreed: the fiscal cliff continues to dominate conversations about the tax-exempt market.
Market pros are preparing for higher taxes and for the possibility munis' tax-exempt status will be affected by negotiations in Washington.
"The cliff is dominating everything right now," said John Hallacy, manager of municipal bond research at Bank of America Merrill Lynch. "But there's more talk now about the debt ceiling, too. President Obama wanted to extend the debt ceiling for two years. It looks like the Republicans are only interested in a year. They're not necessarily linking the debt ceiling to the cliff, although they're both jamming things up, time-wise."
The Christmas and New Year's holidays drastically cut primary issuance this week, as predicted. The market should see an anticipated $2 million total long-term issuance, all on the competitive side of the market.
The numbers are a marked downward shift from last week's revised $3.14 billion. There was a revised $879 million in competitive offerings last week, coupled with a revised $2.26 billion in negotiated deals.
But the market estimate of $2 million for the week easily would rank as the lowest on record at Thomson Reuters' database, which goes back to 1986. In fact, Thomson Reuters' database goes back to 1980, but explains that data collection was spottier then, leaving older numbers relatively unreliable.
The current record low for a single week during the period between 1986 and 2012 is the week of Jan. 1 through Jan. 4, 1986, in which $29.2 million reached the muni market.
That, however, was due in part to the Jan. 1 effective data for the Tax Reform Act of 1985, which inspired a massive rush to market at the end of 1985 to beat the new municipal bond restrictions.
The lowest volume for the New Year holiday week was $222.3 million, which occurred during the span of Dec. 28, 2008, through Jan. 3, 2009.
The lowest volume for the Christmas holiday week occurred on the week from Dec. 22 through Dec. 28, 2002, which was $273.4 million.
And so far, it looks as though expected January volume is pretty light out of the gate, as well, Hallacy said. In the secondary, there were a couple of small customer bid lists in the morning, but there was nothing at the bid more than $5 million bonds.
Tax-exempt yields closed Thursday's session steady through six years and beyond 19 years, according to one market read. Between seven and 19 years they fell one to three basis points lower, with the most notable drop falling around nine to 12 years.
The Municipal Market Data triple-A yield curve ended Thursday's session lower in the belly of the curve. The benchmark 10-year triple-A yield closed three basis points lower at 1.74%, after three straight trading sessions at 1.77%.
The 30-year yield closed flat at 2.83% for the fourth session. The two-year finished unchanged at 0.31% for the seventh consecutive trading session.
Treasury yields closed out Thursday lower across most of the curve. The benchmark 10-year yield dropped three basis points to 1.72%. The 30-year yield also decreased three basis points to 2.90%. The two-year was unchanged at 0.27%.
The muni market also may have been reacting to moves in the volatile equities market and the slew of economic news reported on the morning.
"Inflation is still signaling pretty benign," Hallacy said.
In economic news, the Labor Department said Thursday that initial jobless claims fell 12,000 to 350,000 in the week ended Dec. 22.
In addition, the Commerce Department reported that sales of new single-family houses increased 4.4% to a seasonally adjusted annual rate of 377,000 in November.