The municipal market may have been in holiday mode this week, but there has been noticeable activity by institutions in the secondary, traders reported.
The week’s light issuance in the primary market was well-received, as demand remained robust for tax-exempts. Municipal and Treasury rates on the week since Friday fell several basis points across all but the front ends of their respective yield curves.
Muni indexes each dropped four basis points, reflecting the modest drop in yields on the week. The Bond Buyer’s 20-bond index of 20-year general obligation yields declined four basis points this week to 3.72%, which is its lowest level since Aug. 2, when it was 3.66%.
The 11-bond index of higher-grade 20-year GO yields also dropped four basis points this week to 3.51%. That is its lowest level since Aug. 2, when it was 3.45%.
The yield on the U.S. Treasury’s 10-year note dropped four basis points this week to 1.63%. That is its lowest level since Aug. 2, when it was 1.48%.
The yield on the Treasury’s 30-year bond also dropped four basis points this week to 2.75%, which is its lowest level since Aug. 2, when it was 2.55%.
Secondary activity aside, many factors contributed to the quiet week overall.
For one, the last week in August approaching Labor Day holiday is one marked by a seasonal lull in bond issuance and market participant attendance, said Steven Schrager, a director of research at SMC Fixed Income Management LP.
“People aren’t around; there’s no one really to create markets,” he said. “But it’s a good time to take into consideration where your game plan is going forward.”
The markets are watching events in Europe with a close eye. More importantly, they’re looking for any announcements that might emerge this weekend from the Federal Reserve’s annual economic policy symposium in Jackson Hole, Wyo.
Treasury yields, which have tightened up and been one of the drivers of the tax-exempt market on the week, will react to the weekend’s meeting, according to Schrager.
“Treasuries are on hold,” he said. “Everything’s on hold.”
But muni market volume is expected to pick up after Labor Day. Next month, Schrager said, market watchers will have a better sense of direction.
The same holds for all fixed-income markets as the November elections approach and actual policies, rather than generalities, take shape.
Muni yields since last Friday fell across most of the curve. The benchmark 10-year dropped five basis points to 1.74%.
The 30-year skipped down four basis points over the same period to 2.89%. The two-year remained at 0.29% for a 26th consecutive session.
“You’ll still see refundings, as rates are still low,” Schrager added.
Muni ratios to Treasuries also remained essentially unchanged over the week since last Friday.
They held at cheap levels, measuring at least 105% across the curve over the period, according to Municipal Market Data.
The revenue bond index, which measures 30-year revenue bond yields, fell four basis points this week to 4.45%. This is its lowest level since July 26, when it was 4.44%.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, declined four basis points this week to 0.23%, which is its lowest level since Aug. 8, when it was 0.22%.
The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, remained unchanged this week at 4.26%.
It remains the highest weekly average for the yield since the week ended July 19, when it was 4.31%.