Munis Strong; Stocks Have Worst Christmas Eve Since ‘33
Municipal bonds were stronger on Monday as Christmas week kicked off with more volatility in the equity market. The Dow Jones Industrial Average and S&P 500 Index suffered their worst Christmas Eve losses since 1933, according to data cited by MarketWatch. Stock indexes overall fell to their lowest levels since April 2017 and pushed up Treasury and muni bonds.
Financial markets closed down early ahead of the holiday. There are no muni bonds slated for sale this week, with the new issue calendar as bare as Old Mother Hubbard’s cupboard.
Municipal bonds were stronger on Monday, according to a read of the MBIS benchmark scale. Benchmark muni yields fell as much as two basis points in the oneto 30-year maturities.
High-grade munis were also stronger, with yields calculated on MBIS’ AAA scale dropping as much as two basis points across the curve.
Municipals were steady on Municipal Market Data’s
AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the 30-year muni maturity remaining unchanged.
Treasury bonds were stronger amid continuing stock market weakness. The Treasury 30-year was yielding 3.004%, the 10-year yield stood at 2.755%, the five-year was at 2.591%, the two-year was at 2.595% while the Treasury three-month bill stood at 2.386%.
“Over the weekend, President Trump was talking about firing Federal Reserve Chairman Jerome Powell according to reports,” ICE Data Services said in a Monday market comment. “The Fed raised rates two weeks ago bringing the Fed Funds rate to just below neutral. As a result, equity markets have dropped into correction territory, ending the longest bull run in history for the S&P 500.”
On Sunday, Treasury Secretary Mnuchin called the CEOs of the nation’s six largest banks, who told him that they have ample liquidity available for lending to consumer, business markets, and all other market operations. On Monday, he was holding a call with the President’s Working Group on financial markets, which includes the the Federal Reserve Board of Governors, the Securities and Exchange Commission and the Commodities Futures Trading Commission to discuss efforts to assure normal market operations.
“We continue to see strong economic growth in the U.S. economy with robust activity from consumers and business,” Mnuchin said in a press release. “With the government shutdown, Treasury will have critical employees to maintain its core operations at Fiscal Services, IRS, and other critical functions within the department.”
On Monday, the 10-year muni-to-Treasury ratio was calculated at 83.8% while the 30-year muni-to-Treasury ratio stood at 100.9%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.
The Municipal Securities Rulemaking Board reported 37,553 trades on Friday on volume of $9.59 billion.
California, New York and Texas were the municipalities with the most trades, with the Golden State taking 17.302% of the market, the Empire State taking 13.382% and the Lone Star State taking 9.398%.
Revenue bonds comprised 56.83% of total new issuance in the week ended Dec. 21, according to Markit with general obligation bonds making up 38.19% and taxable bonds accounting for 4.98%.
Some of the most actively traded munis by type in the week were from New York, Texas and Puerto Rico issuers, according to Markit.
In the GO bond sector, the Suffolk County, N.Y., 5s of 2019 traded 99 times. In the revenue bond sector, the Texas 4s of 2019 traded 41 times. And in the taxable bond sector, the Puerto Rico Government Development Bank Recovery Authority 7.5s of 2040 traded 14 times.names were among the most actively quoted bonds in the week ended Dec. 21, according to Markit. ◽