The municipal market closed the holiday-shortened week with yields remaining flat at calendar-year lows, while Treasury yields suffered a second day.
A trader in New York called the secondary muni market “quiet, under control, and slightly improved.” He described trading activity as light, but said more reinvestment money was flowing in relative to June.
“It is the doldrums of summer,” a Los Angeles trader said, noting that activity on the short end of the curve was livelier than expected. “I am seeing a lot of interest in paper I can’t find, which is one year or less, but other than that it’s really quiet.”
The Los Angeles trader said some of his peers are waiting for more options next week.
The Treasury market continued to weaken after broad losses Thursday. The benchmark 10-year note, whose yield rose 10 basis points Thursday, ended Friday at 3.07%, four basis points higher than the prior close. The 30-year bond, whose yield rose 12 basis points Thursday, rose another three basis points to 4.04%. The two-year note, which rose two basis points Thursday, rose one basis point to 0.64%.
“Treasuries got hit yesterday and they got hit again today,” the New Yorker said.
The rise in Treasury yields reflects a return to normalcy rather than a deteriorating market. The 200-day average for the benchmark 10-year note is slightly above 3.5%, or more than 40 basis points higher than the current level.
The Municipal Market Data triple-A scale yielded 2.67% in 10 years on Friday, unchanged from Thursday — the lowest since early October. The 20-year yield offered 3.70%, also equivalent to levels Thursday. The scale remained unchanged at 3.99% in 30 years.
Thursday’s triple-A muni scale in 10 years was at 88.7% of comparable Treasuries and 30-year munis were at 100.0%, according to MMD. Also, 30-year tax-exempt triple-A general obligation bonds were at 105.3% of the comparable London Interbank Offered Rate.
New issuance Friday was light. The biggest deal was from Morgan Stanley, which offered final pricing for $162.41 million of special obligation bonds issued by the Mississippi Development Bank in two series.
Bonds from the $93.58 million Series C mature from 2016 through 2027 with yields ranging from 2.71% with a 5% coupon to 4.49% with a 5.25% coupon. Series D offered $68.83 million of bonds with yields ranging from 2.71% with a 5% coupon in 2016 to 4.49% with a 5.25% coupon in 2027.
Both series, callable at par in 2020, are rated AA-minus by Standard & Poor’s and AA by Fitch Ratings.
The Mesquite Independent School District in Dallas County also came to market with a $75.16 million offering priced by Piper Jaffray. The district has an underlying rating of AA by Standard & Poor’s and AA-plus by Fitch, and it is insured by the Texas Permanent School Fund, which is rated AAA by both agencies.