So much for a sleepy Monday. Munis spent Monday rallying as yields fell across the curve and tried to keep up with Treasuries, which continued their rally from Friday.
“We did not have the same kind of rally that Treasuries did today,” a Los Angeles-based trader said. “There were some solid bumps in the curve but the muni market is kind of lagging. Munis didn’t perform on the downside when Treasuries sold off last week, so now we are underperforming.”
By Monday’s close, tax-exempt yields had fallen between two and eight basis points across the curve, according to the Municipal Market Data scale. On the short end, yields fell as much as two basis points, while the long end saw yields fall as much as five basis points. The belly of the curve had the most change, with yields plummeting up to eight basis points.
The MMD scale showed the two-year closing two basis points lower at 0.44% and the 30-year down five basis points at 3.75%. The benchmark 10-year muni yield dropped seven basis points to 2.39%.
The muni rally was following a two-day lead in the Treasury market. Since Thursday, Treasuries have rallied between six and 29 basis points across the curve.
Friday’s rally continued into Monday, with the two-year falling four basis points Monday to close at 0.26%. The 10-year yield fell 19 basis points Monday to close at 2.13%. The 30-year yield closed at 3.14%, falling 23 basis points Monday.
“The volatility in the 10-year Treasury has been astounding since early last week and the [European Union] Summit meeting,” wrote MMD analyst Randy Smolik, adding the 10-year yield has pared all losses since closing last Wednesday.
By early Monday afternoon, market participants said the rally already had a strong hold on the market. They noted that this week’s large calendar contributed to the rally.
In the primary market, about $8.24 billion is expected for the first week of November. The negotiated calendar should expect $6.7 billion while the competitive market will likely see $1.54 billion.
“The muni space is a little firmer here today with the performance of the Treasury market,” a trader in North Carolina said. “I think it’s pretty much underpinned by the amount of primary issuance that’s coming this week.”
The trader added the market has a “much firmer tone” given what the market needs to digest in the primary space this week.
A trader in Chicago also connected this week’s large calendar to moves in the market.
“It feels like there is a little more solid footing,” said the Chicago trader. “A 'just-in-time’ inventory is the mentality,” the trader said, adding there is a reasonably-sized calendar this week. “So if there is a customer that comes in to buy, people are more inclined to. It’s a different tone from last week. It feels more positive.”
By early afternoon, yields were plummeting. By noon, yields on credits maturing within the five-year range fell as much as three basis points. Yields on bonds maturing in 2017 and 2018 dropped as much as to four and seven basis points, respectively. Yields on 2019 and 2020 credits fell between seven and nine basis points. Yields on credits maturing in the 10-year range declined between six and eight basis points, while yields on 20-year bonds dropped between three and five basis points.
In the primary market Monday, JPMorgan held a second day of retail pricing for $715 million of Connecticut general obligation bonds. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
In retail pricing, yields on the first series, $550 million of tax-exempt GO bonds, ranged from 0.46% with a 2% coupon in 2013 to 3.72% with a 3.625% coupon in 2030. Credits maturing in 2012 were offered via sealed bid. Bonds maturing between 2023 and 2025, 2027 to 2028, and those with maturities in 2031 were not offered for retail investors. The bonds are callable at par in 2021.
The second series, $165 million of GO refunding bonds, were not available for retail.
Bank of America Merrill Lynch priced for retail $275 million of Delaware GO bonds. The bonds were rated triple-A by the major credit rating agencies.
Yields ranged from 0.44% with a 2% coupon in 2013 to 3.46% with a 3.5% coupon in 2031. Bonds maturing in 2012 were offered via sealed bid. Credits maturing between 2023 and 2025, and those maturing in 2027 and 2030 were not offered for retail. The bonds are callable at par in 2020.
In the secondary market, Smolik noted there was some “reaching of buyers” as yields were lowered in the secondary market. The 10-year “high-grade trading had seen big reaching,” he said. “The professional trade was keeping the rise in ratios to taxable in check and suggested an aggressively bid for competitive high-grade sales tomorrow.”
Trades reported by the Municipal Securities Rulemaking Board Monday showed gains. A dealer sold to a customer Michigan Finance Authority 5s of 2020 yielded 2.50%, 16 basis points lower than where they traded Thursday. A dealer sold to a customer Michigan Finance Authority 5s of 2020 at 2.61%, five basis points lower than where they traded Friday.
Bonds from an interdealer trade of Massachusetts School Building Authority 5s of 2021 yielded 2.67%, two basis points lower than where they traded Friday.