The tax-exempt market ended on a firm tone Friday for its third consecutive session after cheapening earlier in the week.
Once buyers sifted through what was one of the year's largest weeks of new issuance, munis firmed in the secondary towards the end of the week, then started to slow down by Friday.
"Things just got real quiet," a New York trader said, referring to a slow day of trading on a summer afternoon. "Munis are about even."
On Friday, yields inside six years were steady while yields outside seven years fell one and two basis points, according to the Municipal Market Data triple-A yield curve.
The 10-year yield fell one basis point to 1.86% while the 30-year yield dropped two basis points to 3.15%. The two-year was steady at 0.32% for the 11th straight session.
For the week, yields ended lower. The 10-year yield closed down four basis points from the week before while the 30-year yield finished down three basis points. The two-year was steady.
Treasuries were stronger after a weaker session Thursday. The benchmark 10-year yield dropped four basis points to 1.59%, while the 30-year yield fell three basis points to 2.70%. The two-year yield fell two basis points to 0.29%.
In the secondary market, trades compiled by data provider Markit showed mostly firming. Yields on Florida's Citizens Property Insurance Corp. 5s of 2019 fell five basis points to 3.01%, while New Jersey Turnpike Authority 5s of 2033 dropped four basis points to 3.49%. Yields on Connecticut 5.69s of 2023 and Massachusetts Health and Educational Facilities Authority 5.5s of 2036 each fell two basis points to 2.90% and 2.13%, respectively.
Throughout June, muni-to-Treasury ratios fell as munis outperformed Treasuries and became relatively more expensive.
The two-year muni-to-Treasury ratio plummeted to 110.3% on Friday from 123.1% on June 1. The 10-year ratio dropped to 117% from 119.9% at the beginning of the month. The 30-year ratio fell to 116.7% from 120.6% at the start of June.
So far in June, the slope of the yield curve has risen as investors traded in longer-duration bonds for shorter maturities. The one- to 30-year slope of the curve widened to 297 basis points from 284 basis points on June 1. The one- to 10-year curve also widened to 167 basis points from 155 basis points at the beginning of the month.
Credit spreads have widened throughout June as credit fears spooked investors into buying higher-quality bonds and a supply glut widened spreads.
The 10-year triple-A to single-A spread widened to 80 basis points from 78 basis points on June 1. The 30-year spread rose to 78 basis points from 75 basis points at the beginning of June. The two-year triple-A to single-A spread held steady at 39 basis points.
In June, muni exchange-traded funds have struggled. The iShares S&P National AMT-Free Municipal Bond ETF — ticker MUB — fell 0.51%. The SPDR Nuveen Barclays Capital Short Term Municipal Bond ETF — ticker SHM — fell 0.41%. The PowerShares Insured National Muni Bond ETF — ticker PZA — dropped 0.63%.
Muni ETFs underperformed the ProShares Ultra Seven to 10 Year Treasury ETF — ticker UST — which rose 0.72% for the month so far.
Muni ETFs fell short of corporate bond ETFs. The iShares iBoxx High Yield Corporate Bond ETF — ticker HYG — rose 0.65% and the iShares IBoxx Investment Grade Corporate Bond Fund ETF — ticker LQD — increased 0.63%.
This week, the municipal market can expect $8.33 billion of new issuance, down from last week's revised $11.76 billion. The negotiated market can expect $6.44 billion, down from last week's revised $10.4 billion. On the competitive calendar, $1.89 billion is expected to be priced, up from last week's revised $1.36 billion.