The two-day surge of new issuance this week did not sink the municipal bond market in a holiday-shortened week.
The busy primary market eclipsed a desolate secondary. Many of the week’s largest deals needed a little slack in yields to get done.
Tax-exempt yields underperformed those of Treasuries for much of the week, but by Thursday that was no longer the case. The market emerged without seeing much of a selloff.
The Bond Buyer’s 20-bond index of 20-year general obligation yields increased six basis points this week to 3.81%. That is its highest level since May 3, when it was also 3.81%.
The 11-bond index of higher-grade 20-year GO yields rose seven basis points this week to 3.60%, which is its highest level since April 26, when it was 3.65%.
The yield on the U.S. Treasury’s 10-year note increased seven basis points this week to 1.78%, but it remained below its 1.89% level from two weeks ago. The yield on the Treasury’s 30-year bond rose five basis points this week to 2.86%, but remained below its 3.06% level from two weeks ago.
If anything, the market absorbed this week’s surge in issuance without too much indigestion, or appreciable lift in yields. Treasuries and low yields are driving tax-exempts, said Matt Fabian, a managing director at Municipal Market Advisors.
“In general, we’re going to weaken or strengthen with Treasuries to a point,” he said. “But there’s real resistance to muni performance beneath a certain yield level. There’s clearly been capitulation by buyers to buying lower and lower yields; it’s a slower process. We can’t run into the basement as quickly as the Treasury market can.”
Since last Friday, muni yields rose across the curve, according to Municipal Market Data numbers.
The benchmark 10-year triple-A jumped five basis points over the period to 1.83%.
The two-year yield rose two basis points to 0.33%. The 30-year jumped five basis points to 3.14%.
The revenue bond index, which measures 30-year revenue bond yields, gained one basis point this week to 4.76%. That is its highest level since May 3, when it was 4.77%.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, was unchanged this week at 0.24%, which is still its lowest level since April 18, when it was 0.23%.
The weekly average yield to maturity of the Bond Buyer municipal bond index, which is based on 40 long-term bond prices, declined three basis points this week to an all-time low of 4.39%. It is the third consecutive record low for the weekly average.
The week’s volume, though huge, didn’t seem to impair the market. As a case in point, Fabian noted, one large deal saw a 20-basis-point jump in yield in the primary, and it didn’t cloud the overall price discovery.
“Things stay afloat despite that,” he said. “In general, people are looking for justification for a change in current prices. As long as you can move decent blocks of bonds at these levels, in a sense, it justifies where they are.”