The municipal bond market is poised to close out a rather slack week.
Muni bond yields have climbed steadily on the intermediate and long ends of the curve, and muni ratios to Treasuries in those ranges have become cheaper in the wake of their underperformance.
Still, there were bright spots for the market. Traders said new deals were well-received, and the two-year muni yield reached a record low on Tuesday, which it has held.
The two-year muni’s ratio to Treasuries has fallen almost 97 percentage points since Sept. 19, to 103.57% from 200%, according to Municipal Market Data. Muni bond mutual funds largely mirrored yields: little movement on the short end, lots of movement everywhere else.
The Bond Buyer’s 20-bond index of 20-year general obligation yields increased 10 basis points this week to 3.70%. That is the highest level for the index since Jan. 5, when it was 3.83%.
The 11-bond index of higher-grade 20-year GO yields rose eight basis points this week to 3.42%, which is the same level as two weeks ago.
The yield on the U.S. Treasury’s 10-year note increased 21 basis points this week to 2.04%, which is its highest level since Dec. 1, when it was 2.11%. The yield on the 30-year Treasury gained 18 basis points this week to 3.19%, which is its highest level since Oct. 27, when it was 3.45%.
After roughly three months of strengthening, the market was due for a softening, rather than some sudden, unrestrained sell-off, according to John Dillon, chief municipal bond strategist at Morgan Stanley Smith Barney.
Much of the Street continues to wait to see when the larger supply is finally going to arrive.
The industry is also closely following muni bond mutual fund inflows. In addition, Dillon said, the relative-value metrics, such as the 10-year triple-A muni ratio to Treasuries, have clearly come down.
“Ratios have come down drastically from where they were one-and-a-half to two months ago, so the relative value doesn’t seem to be what it was,” he added. “And while that’s all going on, we’re watching the 10-year Treasury slide a little higher above the 2%-range. So there seems to be a fair number of reasons to step aside and see where this is going.”
Current 10- and 30-year ratios sit in richer territory than they had in October — and have for a while — at 91.67% and 103.13%, respectively. Since last Friday, muni yields in the 10- and 30-year ranges have risen 10 basis points and seven basis points, respectively.
By comparison, Treasury yields on the week weakened across the curve. Since last Friday, the two-year, 10-year and 30-year yields all rose four, nine and four basis points, respectively.
The revenue bond index, which measures 30-year revenue bond yields, gained seven basis points this week to 4.77%. That is its highest level since Jan. 19, when it was also 4.77%.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, was unchanged this week at 0.25%.
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 4.58%. But it remained below its 4.67% average from the week ended Jan. 26.
