A day after muni yields plunged into the record books, the market paused to absorb the depths it has reached. Trading activity in the secondary, moderate to start the session, tailed off Friday into a state of wary and weary stasis.
“Given all the moves we’ve had, and the volatility Treasuries saw, everyone seemed to step to the sidelines today,” a California trader said. “It was much more difficult to get things done. Everyone was waiting to see what’s going to happen, if these levels are going to hold.”
With Operation Twist, the Federal Open Market Committee succeeded in flattening the yield curve for munis with intermediate or long-term maturities, lowering them to record levels in both spaces. In so doing, it has also created opportunities in the market for issuers and investors, muni pros said.
“You’ll get a wave of refunding here,” a trader in Texas said. “It’s going to get sucked up, to the extent that there’s size, especially in the shorter end, where the comparison to Treasuries is so dramatic.”
Where rates are, there is a strong incentive for issuers with any new money to come to market, in general, according to Justin Hoogendoorn, a managing director at BMO Capital Markets.
In addition, there are opportunities for grabbing Build America Bonds, Hoogendoorn added. “BABs have really lagged, setting up the potential for really good performance,” he said. “There’s a lot of value there and investors are going to step in, particularly with this rally.”
Tax-exempt yields were steady across the curve Friday, holding at market lows for the 10- and 30-year, according to the Municipal Market Data scale.
The 10-year muni yield held at 1.97%. For the week, it dropped 16 basis points. The 30-year yield also held at 3.44% on the day. It plunged 26 basis points on the week. The two-year yield remained at 0.32% for a seventh straight session.
Treasury yields were weaker across the curve on the day. The benchmark 10-year Treasury yield, after falling 21 basis points over the past two days to its lowest yield in many decades, rose 10 basis points to a still-incredible 1.83%. For the week, it dropped 24 basis points.
The 30-year yield, which plunged 40 basis points over the same period, also rose 10 basis points to 2.90%. It dove 43 basis points for the week. The two-year yield inched up a basis point to 0.22%, and four basis points on the week.
In the negotiated market, Siebert Brandford Shank & Co. priced for retail $752.4 million of New York City general obligation bonds in three series. The institutional order period is expected to occur Tuesday, following two days of retail sales. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Yields for the first series, $584.8 million of Series D GOs, ranged from 1.42% with coupons of 4.00% and 5.00% in a split maturity in 2017 to 3.90% with a 3.875% coupon in 2037. Credits maturing between 2024 and 2031 are not offered for retail.
Yields for the second series, $30 million of Series E, mature in 2023 and aren’t for retail. Yields for the third series, $137.6 million of Series H GOs, ranged from 0.37% with a 3.00% coupon in 2013 to 2.18% with coupons of 3.50%, 4.00%, and 5.00% in multiple maturities in 2020.