The municipal market managed to mostly tread water during a holiday-shortened week.
Tax-exempt yields have more or less hovered since last Friday. Some market watchers see a slight softening of the market over the coming weeks as issuance climbs and the U.S. economic picture improves gradually.
Large competitive deals marked primary market activity on Tuesday, while the heaviest negotiated deals arrived Wednesday. Secondary market activity started the week strong, traders said, and then tapered off as the bulk of week’s primary deals rolled in.
Treasury yields rallied moderately over the period since last Friday on some positive news from Europe. Muni ratios to Treasuries got slightly cheaper on the week, as a result.
Muni bond indexes mostly rose on the week, indicating slightly weaker rates. The 20-bond index of 20-year general obligation yields increased three basis points this week to 3.64%, but remained below its 3.67% level from two weeks ago.
The 11-bond index of higher-grade 20-year GO yields also rose three basis points this week to 3.43%. But it remained below its 3.46% level from two weeks ago.
The yield on the U.S. Treasury’s 10-year note was unchanged this week at 1.68%.
The yield on the Treasury’s 30-year bond declined three basis points this week to 2.86%. But it is still above its 2.82% level from two weeks ago.
While the past week showed a market that floated for the most part, a broader look over six weeks paints a different picture, said Justin Hoogendoorn, managing director of the strategic analytics group for the BMO Capital Markets fixed income team.
The trend will be toward higher rates, he said. And the market will fall into a pattern over the next several months where it should see a bit of a bull steepener, he added, which should help muni ratios to Treasuries fall.
“Munis are still being viewed as a positive asset class that’s attractive in the grand scheme of things,” Hoogendoorn said.
Most high-quality assets, such as mortgages and agencies, are rich at the moment, he added. “But munis are this stand-alone asset class that you can actually get some value in.”
Since Friday, muni yields have mostly jogged in place, Municipal Market Data numbers show. The benchmark 10-year triple-A yield rose one basis point to 1.71%.
The two-year held steady at 0.30% for a 12th straight session. The 30-year yield closed out the week since Friday where it began, at 2.86%.
Muni ratios to Treasuries got cheaper on the intermediate and long ends of the curve thanks to the rally Treasury yields saw. Ratios ended the Thursday all at least at 100%, MMD numbers show.
The Bond Buyer’s revenue bond index, which measures 30-year revenue bond yields, gained four basis points this week to 4.32%. This 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 0.23% — the same level as two weeks ago.
The weekly average yield to maturity of the Bond Buyer municipal bond index, which is based on 40 long-term bond prices, increased one basis point this week to 4.18%. But it remained below its 4.21% level from two weeks ago.