Municipal bonds ignored a volatile Treasury market Friday and simply held steady throughout the curve amid quiet trading.
“We haven’t done a darn thing — there is nothing to talk about,” a trader in New York said. “Our market ignored everything.”
“Munis never got out of the blocks today,” added Municipal Market Data analyst Randy Smolik in a daily commentary. “The tax-exempt market seemed to be biding time until participants depart for the holiday weekend.”
MMD’s triple-A scale changed no more than a basis point over the past five sessions.
The two-year yield finished the week where it started at 0.44%, while the 10-year yield rose a single basis point to 2.65%, and the 30-year yield fell a single basis point to 4.30%.
The iShares S&P National AMT-free municipal bond fund, a $2.1 billion exchange-traded fund used as a proxy for the market, closed the week 0.49% higher at $103.55.
Meanwhile, Treasuries rallied on Euro debt concerns and weak U.S. data.
The trend continued Friday as an 11.6% drop in the pending home sales index sent cash flying into Treasuries in the morning.
“The 11.6% plunge was the third in the past five months, the largest in one year, and much worse than expected,” wrote Jennifer Lee at BMO Capital Markets. The index fell to its lowest in seven months, with the pace of sales 26.5% below year-ago levels.
This “prepares the market for a very weak May existing home sales report when it is released on June 21,” Lee added.
The benchmark 10-year Treasury yield fell to 3.05% in the report’s wake but returned to 3.08% in afternoon trading as taxable traders snatched up profits to cap a six-week rally.
Muni underperformance lifted the 10-year muni-Treasury ratio to 86.6% Friday, up from a 12-month low of 81.7% on May 18.
Muni traders said the four-day week ahead is likely to keep activity limited. Ipreo and The Bond Buyer estimate next week’s volume at $2.5 billion, versus a revised $4.3 billion last week.
The slight volume should help tax-exempt prices stay elevated, particularly as muni mutual funds begin to see inflows after six months of dramatic outpourings.
The latest muni mutual fund data has been mixed. Lipper FMI said the week ending May 25 marked the 28th week of outflows as $296 million was taken out of funds. The Investment Company Institute, by contrast, reported a second week of modest inflows following six months of hefty outflows.
Smolik pointed out the Lipper data wasn’t all bad, though, as high-yield muni funds reported net inflows for the third straight week, gaining almost $15 million. “However, this was a decline from the previous week’s inflow of $94 million,” he said.