The tax-exempt market endured a rough week with over $1 billion in outflows from muni bond funds, primary deals that required lower prices and raised yields, and a weaker secondary market.
Investors pulled $1.47 billion from muni bond funds that report weekly, the biggest week of outflows so far this year, Lipper FMI numbers showed.
“Money is going into equities,” said Pete Stare, an underwriter at FirstSouthwest Co. “Equities are performing much better than fixed income.”
Uncertainty about interest rates and when the Federal Reserve will start cutting back on its $85 billion-a-month bond purchasing program left investors in limbo.
“Primary demand wasn’t great,” Stare said. “You continue to see interest in bonds inside of eight years but for bonds longer than that spreads have widened out. It was a struggle to get deals done as evidenced by Massachusetts downsizing from $1 billion.”
Bank of America Merrill Lynch priced for institutions $675.6 million of Massachusetts bonds, down from the expected $1.1 billion. Yields were raised five basis points from the first retail order period.
In the secondary market, traders all week speculated on May non-farm payrolls released Friday morning and how that would affect interest rates. The number came in slightly better than expected.
“Everyone was talking about unemployment all week and that was overriding everything,” Stare said. “The secondary was very slow.”
On Thursday, activity picked up a little, he said. “Generally two-thirds of the bonds that go out for bid actually trade but yesterday it looked like three-quarters. So there are aged items that people are being told to get out of.”
In odd-lot trading activity, or trades of under 100 bonds, activity jumped. There were 72,647 buy trades for the week ending June 5, up from the previous week’s 47,961 buy trades. It was the most buy trades of any of the previous five weeks.
There were 40,576 sell trades, up from the previous week’s 28,443 sell trades. Sell trades were the most of any of the last five weeks.
The ratio of buy trades to sell trades rose to 1.8 from the previous week’s 1.7 ratio. It was also higher than the 1.6 and 1.7 ratios posted for the last five weeks.
In dollar amount, buy trades rose to $1.949 billion from $1.292 billion the previous week.. It was the highest in five weeks.
Sell trades also jumped for the week ending June 5 to $1.091 billion from $783 million the week before. It was the highest of the last five weeks.
The ratio of dollar amount buy trades to sell trades rose to 1.8 from 1.6, also the highest in five weeks.
Overall for the week, yields on the Municipal Market Data scale ended as much as six basis points higher. The 10-year yield rose two basis points through Thursday to 2.11% and the 30-year yield increased four basis points to 3.28%. The two-year rose one basis point for the week to 0.30%.
Yields on the Municipal Market Advisors scale also ended higher. The 10-year yield rose three basis points through Thursday to 2.17% and the 30-year yield jumped six basis points to 3.40%. The two-year was flat at 0.36%.
Treasuries were weaker for the week through Friday afternoon. The benchmark 10-year yield increased one basis point to 2.17% and the 30-year yield rose three basis points to 3.33%. The two-year was steady for the week at 0.31%.