The municipal market followed Treasuries to firmer ground at the close of trading on Friday, partially recovering from losses in Thursday's volatile market, traders said.
"When it comes to actual business, it was just the right, steady levels, but no one is really stepping up to buy and no one is reaching," said a New York trader. "A lot of people are out and trades kind of dried up at the end of the day and no one was paying attention," he said, calling the market quiet, yet steady.
The triple-A general obligation scale was mixed at the end of trading Friday. The yield on the 2015 maturity increased by 2 basis points, while that on 2016 increased by one basis point. Bonds maturing in 2017 to 2035 were unchanged, while the maturities from 2036 to 2040 were lowered by one basis point, while maturities between 2041 and 2044 were lowered by two basis points.
The benchmark triple-A GO in 2044 ended at a 2.92% yield -- up only three basis points after starting out the week at 2.89%. The 30-year muni rose to a high of 2.94% on Thursday in the wake of Treasury sell-off fueled by an equity rally and Wednesday's announcement by the Federal Reserve Board indicating that it may not raise interest rates until mid-2015.
Treasuries firmed at the close of trading, with the 30-year benchmark yield ending at a 2.76% -- a noticeable improvement from 2.81% on Thursday when Treasury prices sank the most in 17 months on speculation borrowing costs will rise next year and oil resumed its selloff, according to Bloomberg.
The 10-year Treasury ended at a 2.16%, down three basis points on the day, according to Bloomberg. The two-year note, meanwhile, closed at 0.64%, up one basis point on the day.
New issuance became less attractive after municipal bond yields surged Thursday and trading activity will be virtually non-existent next week, traders said.
"Beyond this week, business essentially concludes for much of the market as participation thins considerably heading into Christmas and New Year's," Jeffrey Lipton, managing director and head of municipal research at Oppenheimer & Co. wrote in his weekly municipal strategy on Dec. 15.
Before Thursday's sell-off, week over week benchmark triple-A municipal yields were lower by 14 basis points in the belly of the curve and 12 basis points for the 30 year, Lipton wrote.
The recent outperformance for longer term maturities can be rationalized by shorter-maturity sensitivities to Fed policy decisions, according to Lipton.
Relative value ratios remain compelling with the 10 and 30 year at 95% and 101% respectively, he wrote.
Recent fund flows were positive, according to Lipper FMI, with strong cash movements into short-term, long-term, and high-yield funds, Lipton added.
The sell-off ended a week that saw $5.5 billion of new volume ahead of the typical holiday slowdown, up from the $3.73 billion that was originally expected.
"There's selling pressure for some firms to get lighter," especially heading into the holiday next week, the trader said.
High-grade municipal bond prices increased narrowly on Friday. The yield on the benchmark 10-year general obligation went unchanged from yesterday at 2.08%. While the yield on 30-year GOs fell two basis points to 2.92% from 2.94% on Thursday, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were mixed on Friday, with the two-year note yield increasing one basis point to 0.64% from 0.63% on Thursday. The 10-year yield decreased four basis points to 2.17% from 2.21% while the 30-year declined five basis points to 2.77%, from 2.82% on Thursday.
On Friday, the 10-year muni-to-Treasury ratio was calculated at 95.9% versus 93.7% on Thursday; the 30-year muni to Treasury ratio was at 105.4%, compared with 104.1% on Thursday.
