Tax-exempt municipal bonds rallied in the first full market week of January, as reinvestment cash hit investor portfolios and government data suggested a sluggish economy.
"Munis had a pretty good week to begin with, and now they've caught even more fire with yields coming down after the jobs report," a New York-based trader said in an interview.
Yields declined on Friday after a payroll report by the U.S. government indicated that economic growth may be occurring at a slower pace than expected. Muni participants expressed doubt over whether the Federal Reserve's tapering program would continue as planned at $10 billion a month if the economy remains sluggish.
"Municipal bonds had a broad based rally [Friday] morning in sympathy with Treasuries," Interactive Data said in a report Friday. "The Non-Farm Payrolls reading came in well below Street expectations, fueling expectations of a more labored pace in Fed stimulus tapering."
Yields on municipal bonds plunged in the week ended Jan. 10, with 30-year yields lower by as much as 19 basis points, according to Municipal Market Data's triple-A scale. Ten-year yields fell by 15 basis points, while the two-year yield fell by one basis point.
Traders were unanimous in their concern regarding lack of supply this past week, with the new issue calendar coming in at just $1.79 billion. New deals have been scant since late December, when the calendar was essentially empty for two weeks.
JPMorgan Securities LLC won the bid for $205 million of San Francisco Unified School District general obligation bonds Thursday, the second-largest deal of the week. The bonds are rated Aa2 by Moody's Investors Service and AA-minus by Standard & Poor's Ratings Services.
Yields ranged from 0.33% on 5%-coupon bonds maturing in 2016 to 4.326% on bonds maturing in 2033 with a 4.25% coupon. The bonds are callable at par in 2022.
In the negotiated market, Barclays priced $150 million of Massachusetts Development Finance Agency revenue bonds for Northeastern University. They are rated A2 by Moody's.
Yields on the bonds ranged from 4.40% for 5%-coupon bonds maturing in 2032 to 4.87% on 5%-coupon bonds maturing in 2044. The bonds are callable at par in 2024.
Lack of supply meant investors were scrambling for somewhere to reinvest the money that typically comes in during the month of January. Bond coupons and maturities often pay off in the first month of the year, market participants said, which creates a healthy demand for paper.
"Most of the activity is in the secondary because there hasn't been much in the way of new issues," one Texas-based trader said. "It's going to pick up next week."
The municipal calendar is set to get a boost in the week beginning Jan. 13, with expected volume around $4.5 billion.
