By most standards, the tax-exempt market has had a respectable week.
But one probably wouldn’t reach the same conclusion after looking at municipal bond indexes over that period, which showed a weaker tax-exempt market when compared to Treasuries.
What limited new issuance the muni market has seen has been well-received.
Traders also noted that the supply was often scarce for their bids. And the overall tone in the secondary market was mostly stronger, with yields moving lower.
Some noted a shifting market that pivoted from relative strength to relative weakness after crossing the midweek point. Earlier in the week, 10-year and 30-year triple-A muni yields moved almost in lockstep with those of Treasuries, according to Municipal Market Data.
But by Thursday, they diverged, according to Alan Schankel, managing director at Janney Capital Markets. “We’re seeing some divergence,” he said. “Treasuries are stronger and munis are a little weaker.”
The Bond Buyer’s 20-bond GO index of 20-year general obligation yields increased one basis point this week to 4.02%. It sits at its highest level since Dec. 1, when it was 4.12%.
The 11-bond GO index of higher-grade 20-year GO yields also rose one basis point this week to 3.80%. That represents its highest level since Dec. 1, when it was 3.85%.
The yield on the 10-year Treasury note declined 12 basis points this week to 2.16%. That is its lowest level since March 8, when it was 2.03%.
The yield on the 30-year Treasury bond declined 10 basis points this week to 3.27%. That is its lowest level since March 8, when it was 3.18%.
The limited number of deals this week made price discovery difficult, according to Schankel. “There weren’t that many deals this week to set pricing,” he said.
“Demand was strong, but new issues give you price discovery to see where everything’s trading,” he said. “I suspect the slowdown inhibited the secondary market a little bit.”
Even so, the decrease in volume helped dealers get some inventory off of their books in the early part of the week. But by Thursday, that advantage began to fade, Schankel noted.
“There’s a decent calendar next week,” he said. “That will be helpful for the market.”
The revenue bond index, which measures 30-year revenue bond yields, declined three basis points this week to 4.85%, but remains above its 3.83% level from two weeks ago.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, increased one basis point this week to 0.25%. It lies at its highest level since Feb. 29, when it was also 0.25%.
The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, declined four basis points this week to 4.64%. But it remained above the 4.63% average from the week ended March 15.
