The municipal bond market emerged from a week of heavy issuance somewhat stronger past the front end of the yield curve.
The largest deals mostly were absorbed as they met an audience looking at attractive ratios to Treasuries, hungry to put redemption money to work, and skittish of equities.
Since last Friday, tax-exempt yields fell three basis points at the 10-year part of the curve to 1.87%, according to Municipal Market Data numbers. They ticked down a basis point on the 30-year to 3.17% over the period and were flat at the two-year sector of the curve, holding at 0.32% for a 10th straight session.
“The market is firm,” said Rob Howells, a portfolio manager at PNC Capital Advisors. “All the deals, even though it was a big week, they were priced appropriately. And they cleared the market. It’s been very orderly.”
Muni bond indexes mostly reflected higher rates on the week. All muni indexes except those for revenue bonds rose up to three basis points.
The Bond Buyer’s 20-bond GO index of 20-year general obligation yields increased three basis points this week to 3.95%. It is the highest level for the index since April 12, when it was 3.97%.
The 11-bond GO index of higher-grade 20-year GO yields also rose three basis points this week to 3.74%, which is its highest level since April 12, when it was 3.77%.
The yield on the U.S. Treasury’s 10-year note declined three basis points this week to 1.63%, but it remained above its 1.58% level from two weeks ago.
The yield on the Treasury’s 30-year bond dropped two basis points this week to 2.73%, but remained above its 2.67% level from two weeks ago.
The week’s biggest deal, $2.68 billion of Michigan Finance Authority revenue bonds that priced for institutions Tuesday, dominated the primary market.
Citi priced the deal’s first series of $1.47 billion for institutions. Yields were increased as much as five basis points on certain maturities from the retail order period Monday.
Bank of America Merrill Lynch priced the second series of $1.21 billion for institutions. Yields were lowered between five and 15 basis points from retail pricing Monday.
They were well-subscribed for, according to Howells. “The dealers priced them right,” he said. “They cleared the market.”
After a slow start to the week, the secondary picked up speed to see strong activity Thursday, Howells added. The market was so fixated on the primary during the first two days of the week that the secondary saw sparse activity.
MMD yields “may not be up as much today,” he said. “But the depth of the market — as far as how many bids we’ve been getting on things we’ve been trying to sell — has been very good, better than it has been in a couple of weeks.
While managing money for retail investors, Howells has noticed that mom-and-pop investors may not like the low-yield environment. But they don’t really have too many other options they think are more attractive, he added.
Muni ratios to Treasuries remain cheap across the curve. The 10-year ended Thursday’s session at 114%, the two-year closed at 106% and the 30-year settled at 116%.
The revenue bond index, which measures 30-year revenue bond yields, declined five basis points this week to 4.75%, but remained above its 4.73% level from two weeks ago.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, rose one basis point this week to 0.25%, its highest level since May 9, when it was also 0.25%.
The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, increased three basis points this week to 4.41%. That’s the highest weekly average since the week ended May 17, when it was 4.42%.