The municipal bond market adopted a slightly weaker tone this week.
Muni yields followed those of Treasuries higher and mostly ignored the strong reception to new issuance.
Tax-exempt yields have risen in the belly and at the long end of the curve. But they have outperformed Treasuries, which have seen significant increases across the yield curve.
Still, investors snapped up deals for New York’s Metropolitan Transportation Authority and the California State Public Works Board, the week’s largest. Yields for the MTA deal were lowered as much as 13 basis points from retail to institutional pricing.
As though following yields, muni bond indexes rose on the week at all but the front end, reflecting higher rates. The 20-bond index of 20-year general obligation yields increased four basis points this week to 3.68%, its highest level since Sept. 20, when it was 3.72%.
The 11-bond index of higher-grade 20-year GO yields also rose four basis points this week to 3.47%. That is its highest level since Sept. 20, when it was 3.51%.
The yield on the U.S. Treasury’s 10-year note increased 16 basis points this week to 1.84%. That is its highest level since Aug. 16, when it was also 1.84%.
The yield on the Treasury’s 30-year bond also rose 16 basis points this week to 3.02%, which is its highest level since May 10, when it was 3.06%.
Treasury yields and issuance contributed to the market’s movements on the week, said Natalie Cohen, managing director at Wells Fargo Securities.
“Certainly, muni ratios to Treasuries have tightened,” she said. “But a lot of that is on the Treasury’s side, given the glimmers of positive news in housing and retail improvement.”
There remains a lot of cash looking for yield. But all things considered, munis have done pretty well, Cohen added.
“In the primary market, volume for the week went pretty well,” she said. “The secondary was a little bit softer.”
Muni yields have risen modestly on the week, according to Municipal Market Data numbers.
Since Friday, the benchmark 10-year triple-A yield climbed five basis points to 1.74%.
The 30-year has inched up two basis points over the period to 2.86%. The two-year has held steady at 0.30% for 17 straight sessions.
Muni ratios to Treasuries have moved steadily into richer territory, crossing below the 100% barrier across almost the entire yield curve. On the week since last Friday, the two-year ratio landed at 100%.
The 10-year ratio fell to 94.6%, the lowest since May 10. The 30-year ratio dropped to 94.7%, its lowest since Oct. 15, 2010.
“Treasuries softened up, so munis looked relatively richer,” Cohen said. “Then, there’s also the effect of the relative value of the Treasury buyer then crossing over into munis. Treasuries are definitely where the action took place.”
But falling ratios might not necessarily work to investors’ advantage, Daniel Berger, a senior market strategist at Thomson Reuters, wrote in a research post.
“Indeed, muni bonds are 'rich’ and could be headed for a relative performance decline,” Berger wrote. “We think that fund flows will be overwhelmingly positive [Thursday] afternoon. However, we are worried that the best relative performance for the long end may have already been achieved.”
The Bond Buyer’s revenue bond index, which measures 30-year revenue bond yields, gained one basis point this week to 4.33%. That is its highest level since Sept. 20, when it was 4.37%.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, declined two basis points this week to 0.21%, which is its lowest level since Aug. 1, when it was also 0.21%.
The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, declined three basis points this week to an all-time low of 4.15%. It is the third time in four weeks that the weekly average has reached a record low. The Bond Buyer began calculating the average yield to maturity on Jan. 1, 1985.