After a wild week that took the tax-exempt market up and down, munis ended on firmer footing Friday as a global risk-off trade forced bond yields lower.
Overall for the week, municipal bond yields were virtually unchanged, with the exception of the long end, which finished slightly firmer.
“We are ending the week on a firm tone,” a Chicago trader said. “The market was really strong at the beginning of the week. We labored in the middle, but are closing on a positive note.”
By mid-week, the bid side had dried up. “It was been a weird week,” the trader said. “We had a couple of runs and then it was like, 'Where’s the bid? Where’s the beef?’ But now it looks like we are feeling a little bit better and getting more people engaged.”
He added that the market has seen fairly decent-sized calendars over the past weeks, which keeps traders focused on the new-issue market.
Some of the weakening, however, can be attributed to tax time. “Traditionally, tax time is a slow time,” he said. “And people think, which assets do you need to pay taxes? But then it starts up again in May.”
A New York trader agreed the tone felt stronger Friday. “Munis are stronger because of Treasuries,” he said.
Munis followed Treasuries higher Friday, according to the Municipal Market Data scale. The one-year muni yield fell two basis points, while yields between two and six years were steady. Outside seven years, yields fell between one and three basis points.
On Friday, the two-year yield closed steady at 0.33% for the fifth consecutive trading session. The 10-year yield and the 30-year yield each dropped three basis points to 1.97% and 3.32%.
Treasuries were buoyed by a risk-off trade that hit global markets Friday. The two-year yield fell two basis points to 0.27%. The benchmark 10-year yield dropped seven basis points to 1.99% while the 30-year yield plummeted nine basis points to 3.22%.
In the secondary, data compiled by Markit showed munis were stronger. Of a sample of eight CUSIP numbers, seven of the bonds were stronger, with yields falling between one and six basis points.
Yields on Pennsylvania State Turnpike Commission 5s of 2037 fell three basis points to 4.39% while yields on Puerto Rico 5.5s of 2039 dropped two basis points to 5.15%. Yields on California Health Facilities Financing Authority 5s of 2033 fell five basis points to 3.84%, while yields on New York 5s of 2030 plunged six basis points to 3.20%.
Over the course of last week, muni-to-Treasury ratios increased as munis underperformed Treasuries and became comparatively cheaper. The five-year muni yield to Treasury yield rose to 97.8% from 96% at the end of the previous week. The 30-year ratio jumped to 104.4% from 103%. The 10-year ratio was virtually unchanged, falling to 97.6% from 97.7%.
While the slope of the yield curve has flattened to 317 basis points from 324 the week before, the 10- to 30-year slope has steepened to 135 basis points from 130 at the end of the previous week.
Looking to this week’s primary market, $7.45 billion is expected to be issued, up from last week’s revised $6.43 billion. On the negotiated calendar, $5.13 billion is expected, up from last week’s revised $4.96 billion. In competitive offerings, $2.32 billion is expected to come to market, up from last week’s revised $1.47 billion.
