The municipal market ran out of steam on Friday.
The torpor of quiet Treasuries, little momentum from the week’s deals and secondary trading, and prohibitively low yields pushed many traders to prep for next week’s calendar, as well as tune into the U.S. Open.
Low yields on the short end of the curve loomed over investors like a thunderhead, tying their hands and sapping their wills to participate, a trader in Los Angeles said.
“There were no trades leading the market,” he said. “There wasn’t much direction. People are reasonably comfortable with their inventories. There’s some concern over the slight uptick in supply. Maybe people think we need to back off a little from this run.”
For next week’s supply, the municipal market mostly has its eyes on the $920 million of competitive Georgia general obligation bonds set to arrive Tuesday. The deal might serve to push yields higher, a trader in Chicago said.
Tax-exempt yields held steady throughout Friday, according to the Municipal Market Data triple-A scale. They’ve been content to sit on the calendar lows they reached on both the short and long ends throughout the week.
The 10-year benchmark yield ended the week at 2.63% for the second session in a row, the MMD scale showed. Likewise, the 30-year yield hovered at 4.23% for another day, its low since Nov. 12.
The two-year yield held at 0.42% for the fifth consecutive day, its lowest level since Sept. 7, according to MMD numbers. Before that, it had held at 0.44% for 17 consecutive trading sessions.
“On the short end, low yields have kept people passive,” the trader from Los Angeles said. “You’re getting some capitulation, though, when people reach a point where they just have to buy.”
Treasury yields, after a dramatic week of sharp increases and sizable retreats, mostly shuffled in place Friday. The 10-year yield stalled at 2.93%.
The two-year yield ended the day flat at 0.39%. The 30-year yield skipped up three basis points to 4.20%.
Friday was a session with limited tax-exempt trading and too modest a move by Treasuries to inspire muni activity, according to MMD analyst Randy Smolik. “But the session was encouraging from the ability of attractive negotiated product of the week to tighten to the curve,” he added.
The market regarded the secondary trading in this week’s $610 million Utah GO loan as one sign of encouragement, Smolik said. Blocks of size were pushed aggressively through original levels and offered around the MMD triple-A curve, he said.
New deals, which were expected to total $5.22 billion this week, received a mixed reception. Still, it marked the first time this calendar year that at least $5 billion in new issuance hit the market in consecutive weeks.
The S&P Municipal BAB Select Index has demonstrated the value investors have seen in Build America Bonds since Congress closed the program for them at the end of last year, said J.R. Rieger, vice president of fixed-income indexes at Standard & Poor’s.
The index has risen more than 9% for the quarter, and just under 11.25% for the year to date. It has outperformed the general municipal bond market by more than 500 basis points.
Friday’s economic signals were light. The preliminary June University of Michigan consumer sentiment index ranked as the most important of the day.
The preliminary reading for the overall index on consumer sentiment measured 71.8. It fell from a reading of 74.3 the month before. The reading was also lower than the median forecast of 74.0 among economists polled by Thomson Reuters.
“The majority of consumers are as convinced today as they were two and a half years ago that their incomes will not increase,” survey director Richard Curtin said in a statement, “and the majority anticipate that the unemployment rate will remain stuck at about its current level for the foreseeable future.”
