The tax-exempt market continued to outperform Treasuries this week as new issues in the primary market were well received and the secondary market was active, pushing yields lower across the board.
Municipal bond traders said the market was stronger throughout the week.
“Only a few weeks after the December selloff the market has seemingly forgot it,” said Dan Toboja, vice president at Ziegler Capital Markets. “Munis have come back strong. Fund flows have done an about-face and have now had two consecutive weeks of over $1 billion. All the new issues this week were well subscribed. People have money to put to work.”
Indeed, many deals in the market were oversubscribed for and yields were lowered in repricing.
New York’s Metropolitan Transportation Authority issued $500 million and yields were lowered as much as nine basis points. “I looked at the MTA deal and from start to finish they brought yields down nine basis points on the 10-year and seven basis points on the 30-year,” said Alan Schankel, head of fixed income research at Janney Capital Markets. “That’s a pretty good sign of strength.”
The competitive market also saw good reception, he added.
“It seems to me it was a pretty strong week,” Schankel said. “I think the lack of new issue certainly helped and was below last year’s weekly average of about $10 billion. That helped the market outperform Treasuries.”
In the secondary market, bonds were active.
“It seemed busy,” Schankel said. “It was pretty active throughout the week.”
According to the Municipal Securities Rulemaking Board, there were at least 40,000 trades on Tuesday, Wednesday and Thursday, and most days traded more in par value than the 30-day average.
Monday was the slowest day with 37,814 trades, down slightly from the 30-day average of 42,033 trades. In par amount, $9.491 billion traded, down from the 30-day average of $11.258 billion.
Tuesday picked up. There were 41,842 trades, down just slightly from the 30-day average of 42,051 trades. Par amount traded was $12.006 billion, above the 30-day average of $11.236 billion.
Wednesday was the busiest day with 43,403 trades, above the 30-day average of 42,119 trades. Par amount traded was $13.465 billion and higher than the 30-day average of $11.245 billion.
Activity stayed busy Thursday with 41,221 trades occurring, down only slightly from the 30-day average of 41,221 trades. Par amount traded was still above the 30-day average of $11.343 billion, coming in at $13.818 billion.
In retail trades of under 100 bonds — or $100,000 par value — secondary activity was lower this week than last week, according to data from BondDesk Group.
There were 61,759 buy trades for the week ending Jan. 16, down from the 68,393 buy trades for the week ending Jan. 9. There were 31,489 sell trades, about even with the previous week’s 31,156 sell trades.
Though the numbers were lower this week, there was still double the amount of buy trades to sell trades with a 2.0 ratio, just down slightly from the 2.2 ratio the previous week.
In terms of par amount traded, there were $1.714 billion in buy trades compared to last week’s $1.917 billion buy trades.
As yields fell, there was an uptick in sell trades with $928 million of par amount sold compared to the previous week’s $916 million. It was the highest dollar amount of sells since the week ending Dec. 19.
Overall for the week, the Municipal Market Data scale ended higher with yields falling across the curve. The 10-year MMD yield closed three basis points lower to 1.67% while the 30-year MMD yield finished down five basis points to 2.72%.
The two-year yield fell one basis point throughout the week to 0.33%.
Overall for the week, Treasury yields ended lower, though the rally was more muted than the municipal bond rally. The benchmark 10-year Treasury yield fell two basis points for the week to 1.85% while the 30-year yield closed down one basis point for the week to finish at 3.04%.
In municipal bond insurer news, Assured Guaranty Municipal Corp. was downgraded two notches to A2 by Moody’s Investors Service Friday morning. Most traders said market reaction was fairly muted because of quiet Friday trading ahead of a three-day weekend.
More fallout could come early next week, particularly in the retail market.
“AGM is worth more to retail,” a Chicago trader said. “So it will have an impact on the retail market. Retail is where AGM had the most bids and had the most effect so it’s going to be a real challenge.”
On the flip side, new muni bond insurer Build America Mutual insured about $55 million of bonds this week, more than they have in previous weeks.
Some of the larger deals included $10.87 million of New York’s Greater Southern Tier Board of Cooperative Educational Services, $10 million of Armstrong, Pa., School District and $9.18 million of Allegheny County, Pa., School District.