Municipals improved to start the holiday-shortened week while U.S. Treasuries saw losses seven years and out and equities ended mixed.
Triple-A yields fell two to four basis points while UST saw losses of five to six 10 years and out.
Muni-UST ratios fell as a result. The three-year on Thursday was at 68%, the five-year was at 72%, the 10-year at 81% and the 30-year at 96%, according to Refinitiv MMD's 3 p.m. read. ICE Data Services had the three at 68%, the five at 71%, the 10 at 81% and the 30 at 93% at a 4 p.m. read.
In the first week of October, munis had a "strong showing as yields fell an average of 5.3 basis points across the yield curve," said Jason Wong, vice president of municipals at AmeriVet Securities.
Last week was the "first weekly drop in yields since the last week of July when 10-year yields had an average yield of 2.32%," he said.
With a rally in the muni market, he said, "munis were able to finally show positive gains."
For the week, "munis gained an average of 0.83% with the most positive sentiment being in the long end as gains totaled to 1.49% while the short end only showing positive gains of 0.19%," Wong noted.
High-yield is at positive 1.01% and the Impact Index at +0.90 month-to-date, per Bloomberg.
Wong noted this does not mean "munis will have a positive return for the month but it is starting to show that muni yields are at their highest in decades." With ratios cheapening, he said, "investors are slowly starting to look into jumping back into tax-exempt bonds as well as moving further down the curve."
Meanwhile, "fixed income in general sold off in response to Friday's strong jobs report, as the data reinforced the Fed's position that it must continue raising rates until inflation is under control," said Nuveen strategists Anders S. Persson and John V. Miller.
Despite this, they "see rays of hope for munis, including low new issue supply and strong two-sided activity between dealers and institutional managers who continue to rework portfolios."
Demand from individual investors remains strong, as "some tax-exempt bonds may be purchased at a 4% yield," they said.
They expect volatility to continue through the end of the year but "believe the Fed will no longer need to raise rates beyond early 2023."
But while the municipal market performance has improved, uncertainty continues.
"Look for interest rate volatility to eventually subside, leaving attractive muni yields intact," they said. "Combined with solid fundamentals and healthy credit conditions, value created in the market should entice investors.
John Luke Tyler, a fixed income analyst at Aptus Capital Advisors, believes October will be a response to the economic data received throughout the month and what the Fed says.
Over the past several days, "the market is getting the idea that maybe the Fed is going to 'cry uncle' and pivot from some of the hawkish policy," he said.
"The markets are going to continue to trade back and forth on what's the reaction function of what the Fed does," he said.
The next consumer price index report comes out on Oct. 13 and the next Federal Open Market Committee meeting is on Nov. 2, right before midterm elections.
"So it's probably first some sort of rally in rates; that's just a reaction function to the Fed," he said. "And we'll see if Chairman Powell does another Jackson Hole meeting for the next couple of months."
In the competitive market, the North Kansas City School District No. 74, Missouri, (Aa1/AA+//) sold $140 million of general obligation improvement bonds to Wells Fargo Bank with 6s of 3/2027 at 3.10%, 6s of 2032 at 3.31%, 5.25s of 2037 at 3.68% and 4.75s of 2042 at 4.19%, callable 3/1/2032.
The St. Louis Park Independent School District, Minnesota (Aa2///) sold $136 million of general obligation school building bonds, to Morgan Stanley at 5s of 2/2024 at 2.95%, 5s of 2027 at 3.03%, 5s of 2032 at 3.25%, 5s of 2037 at 3.60%, 4.375s of 2042 at 4.36% and 4.25s of 2043 at 4.40%.
The Pinellas County School District, Florida, sold $100 million of tax anticipation notes to Citigroup Global Markets with 4s of 6/2023 at 3.07%, noncall.
Secondary trading
North Carolina 5s of 2023 at 2.89%-2.85%. Maryland 5s of 2023 at 2.90%-2.86% versus 2.99%-2.98% Wednesday. Triborough Bridge and Tunnel Authority 5s of 2024 at 3.09%-3.08%.
Maryland 5s of 2025 at 2.97%-2.96%. NYC TFA 5s of 2027 at 3.11% versus 3.15%-3.12% on 10/4.
NYC 5s of 2031 at 3.53%-3.52% versus 3.52%-3.52% on Friday and 3.55% original on Wednesday. University of California 5s of 2032 at 3.11%-3.10% versus 3.20%-3.21% Thursday.
Maryland 5s of 2036 at 3.49%-3.45%. NY Dorm PIT 5s of 2037 at 4.02%.
NY State Urban Development Corp. 5s of 2047 at 4.43% versus 4.42%-4.35% on 10/4 and 4.54%-4.51% on 10/3. DC 5s of 2047 at 4.06% versus 4.05%-4.01% on 10/4.
AAA scales
Refinitiv MMD's scale bumped two to four basis points: the one-year at 2.91% (-4) and 2.93% (-4) in two years. The five-year at 2.98% (-4), the 10-year at 3.16% (-2) and the 30-year at 3.74% (-2).
The ICE AAA yield curve was bumped three to four basis points: 2.94% (-3) in 2023 and 2.99% (-4) in 2024. The five-year at 3.02% (-4), the 10-year was at 3.20% (-4) and the 30-year yield was at 3.72% (-4) at a 4 p.m. read.
The IHS Markit municipal curve was bumped two to three basis points: 2.92% (-3) in 2023 and 2.94% (-3) in 2024. The five-year was at 3.03% (-3), the 10-year was at 3.14% (-2) and the 30-year yield was at 3.74% (-2) at a 4 p.m. read.
Bloomberg BVAL was little changed: 2.95% (unch) in 2023 and 2.98% (unch) in 2024. The five-year at 3.03% (unch), the 10-year at 3.15% (unch) and the 30-year at 3.78% (unch) at 4 p.m.
Treasuries were weaker out long.
The two-year UST was yielding 4.304% (-1), the three-year was at 4.339% (-1), the five-year at 4.151% (+1), the seven-year 4.062% (+3), the 10-year yielding 3.926% (+5), the 20-year at 4.195 (+6) and the 30-year Treasury was yielding 3.897% (+6) at 3:45 p.m. eastern.
Primary calendar to come:
The New Jersey Turnpike Authority (A1/AA-/A+/) is set to price $500 million of taxable turnpike revenue bonds on Wednesday. Serials 2042-2043, terms 2047, 2052. Wells Fargo Bank
The New York State Housing Finance Agency (Aa2///) is set to price on Wednesday $163.29 million of affordable housing revenue sustainability bonds. J.P. Morgan Securities LLC
The Leander Independent School District (/AAA/AAA/) is set to price on Wednesday $128.73 million of unlimited tax school building bonds (PSF guaranteed), serials 2024-2042, terms 2047, 2052. Ramirez & Co., Inc.
San Antonio, Texas, (Aa2/AA+/AA/) is set to price on Wednesday $99.59 million of water system variable rate junior lien revenue and refunding bonds. Jefferies LLC
The Oklahoma Development Finance Authority (Aaa//AAA/) is set to price on Wednesday $81.565 million of taxable ratepayer-backed bonds (Summit Utilities Oklahoma, Inc.). Citigroup Global Markets Inc.
