The municipal market closed out the week flat to weaker Friday amid fairly light secondary trading activity.
“Not much movement out long, but in the 10-year range particularly, you’re seeing yields back up somewhat,” a trader in Los Angeles said. “Today it’s probably two or three basis points cheaper in that 10-year range, but out longer, we’re probably flat.”
The Municipal Market Data triple-A scale yielded 2.42% in 10 years and 3.33% in 20 years Friday, following 2.40% and 3.33% Thursday. The scale yielded 3.72% in 30 years Friday, matching Thursday.
Tax-exempts have now opened September with wider yields in at least one of the three maturities the first seven sessions of the month after doing so just once in August.
Before the recent sell-off, yields dropped to all-time lows in 10-year munis 12 times in the previous 17 sessions. Also, 30-year tax-exempts set record lows four times in the previous eight sessions, while 20-year munis established all-time lows five times over the same time period.
The record lows currently stand at 2.17% and 3.67% in 10- and 30-year tax-exempts, both established Aug. 25. The 20-year low of 3.28% was set Aug. 31.
“There was some activity today that would suggest we’re still in a weaker trend for the next couple of days, until we see where more new issues are priced,” Rick Taormina, a managing director and portfolio manager at JPMorgan, said Friday. “When we get to rates that are this low, we start to see retail back away a little bit, and I think that makes the institutions that are stocking the bonds that are provided to retail [begin] to back up. It kind of has a ripple effect.”
To illustrate the shifting tides of the muni market, Taormina pointed to two Minnesota deals in the past few weeks.
In early August, the state sold $865 million of general obligation debt in a deal Taormina said was gobbled up in what he described as “an absolute riot.” Minnesota returned last week with a $900.6 million deal that the market was reluctant to take on, Taormina said. An initial retail order period went well, he said, but in the coming days the Street showed it would “really not be able to put the whole deal away” without a concession on rates.
“The appetite at those particular rates, folks just didn’t have the commitment to engage at that point,” he said.
Friday’s triple-A muni scale in 10 years was at 86.7% of comparable Treasuries and 30-year munis were at 96.1%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 106.3% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Friday. The benchmark 10-year note was quoted near the end of the session at 2.80% after opening at 2.76%.
The 30-year bond was quoted near the end of the session at 3.87% after opening at 3.84%. The two-year note finished at 0.57% after opening at 0.57%.
In economic data released Thursday, wholesale inventories increased 1.3% in July — the largest increase in two years — and wholesale sales rose 0.6%. Economists expected inventories to increase 0.4% and sales to increase 0.2%, according to the median estimate from Thomson Reuters.
Activity in the new-issue market was light Friday.
Dan Seymour contributed to this column.