Prices on tax-exempt bonds crumbled under the weight of March seasonal factors, softer Treasuries, and a risk on trade that persisted throughout the week.
“The traditional March - April seasonal issues of our market were very apparent this week,” said Steve McLaughlin, senior vice president at R. Seelaus & Co. “Historically, March and April overall are tough months for performance and distribution.”
He added the benchmark scales have a downward basis and look for evaluations to recalibrate.
In the primary market, deals were somewhat well received though many yields were increased in repricings. High quality deals received better attention, according to traders.
“In the primary market, all in all, high quality deals moved well,” McLaughlin added, noting the interesting structure on Maryland general obligation bonds came with two maturities in the belly of the curve with 4% coupons and 2021 calls. “This attracted attention and was priced wide to historical spreads to Municipal Market Data curve.”
The bellwether for the market, $680.6 million of Maryland GOs, was priced Wednesday to yield as much as four basis points cheaper than Tuesday’s MMD scale. The overall market weakened by as much as seven basis points that day.
“Given Maryland’s exposure to sequester cuts, with its significant levels of federal employment and procurement programs, the sale was watched as a gauge of market concern over the impact of spending reductions on municipal issuers,” wrote Alan Schankel, managing director at Janney Capital Markets. “On balance, the sale was well received with spreads to the benchmarks in line with past sales, indicating that the state’s underlying strong credit metrics alleviated concern over the impact of federal spending reductions.”
Other deals didn’t fare as well. Connecticut sold almost $200 million of GOs for institutions Wednesday. Yields inside 2024 were steady from retail pricing Tuesday but were increased as much as 18 basis points on the long end during the institutional order period.
In the secondary market, interdealer business picked up. “Interdealer was significant and block size high grades with some type special characteristics still presented value and generated nice going away business,” McLaughlin said.
According to the Municipal Securities Rulemaking Board, there was significant activity throughout most of the trading session.
On Monday, there were 38,977 trades, down only slightly from the 30-day average of 39,231 trades. Par amount traded was $9.596 billion, just off the 30-day average of $10.892 billion.
By Tuesday, activity picked up significantly. There were 43,830 trades, up from the 30-day average of 39,577 trades. Par amount traded came in at $9.271 billion, down just slightly from the 30-day average of $10.857 billion.
On Wednesday, there were 43,777 trades, up significantly from the 30-day average of 39,784 trades. Par amount traded was $11.169 billion, higher than the 30-day average of $10.944 billion.
On Thursday, there were 42,395 trades, up from the 30-day average of 39,900. Par amount traded was $11.176 billion, up from the 30-day average of $10.972 billion.
In retail trades of under 100 bonds — or $100,000 par value — secondary activity was stronger this week than last week, according to data from BondDesk Group.
There were 62,199 buy trades for the week ending March 6 compared to the previous week’s 62,180 buy trades. The number of buy trades was also higher this week than the previous five weeks. Sell trades were also up significantly to 36,831 versus the previous week’s 35,767 trades. The number of sell trades was higher than the previous five weeks.
The ratio of buy trades to sell trades came in at 1.7; the ratio has been 1.6 or 1.7 for the previous five weeks.
Dollar volume traded was about on par this week as the previous week. There were $1.751 billion buy trades for the week ending March 6 compared to the $1.752 billion buy trades for the week before. Sell trades were also on par at $1.087 billion versus the previous week’s $1.060 billion sell trades.
The ratio of buy trades to sell trades in dollar amount came in on par with previous weeks at 1.6.
Overall for the week, yields jumped across the curve according to muni benchmark scales.
Through Thursday, the 10-year Municipal Market Data triple-A GO yield soared 16 basis points to 1.94% while the 30-year yield jumped 12 basis points to 3.02%. The two-year was steady for the week at 0.31%.
Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale also jumped. Through Thursday, the 10-year yield spiked up 11 basis points to 1.93% while the 30-year yield rose 10 basis points to 3.08%. The two-year was steady at 0.33%.
Treasury yields moved significantly higher this week. Through Friday afternoon, the benchmark 10-year yield jumped 21 basis points to 2.06% while the 30-year yield soared 19 basis points to 3.26%. The two-year yield jumped two basis points for the week to 0.27%.