Light calendar and stable UST market help munis richen
Munis were firmer on Tuesday as U.S. Treasuries were slightly richer and equities ended lower.
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Muni yields richened by five to eight basis points, depending on the scale. These gains built upon the strength seen Friday, where muni yields fell five to 14 basis points, depending on the scale.
USTs richened by up to four basis points, with the biggest gains out long.
Munis are likely benefiting from attractive nominal yields, according to Kevin McGuigan, director at Municipal Market Analytics.
Muni-UST ratios rose aggressively during September, McGuigan said, and a more stable UST market is helping them come back down. The lighter calendar provides further tailwinds.
“Everyone is talking a lot about nominal yields being so attractive, and the most attractive they’ve been in two decades, and I think that caused a bit of the rally we saw the final day of September and the ensuing couple [of] days, which then retraced,” McGuigan said. “We underperformed to such an extent that allows this type of rebound.”
Tax-loss harvesting is pressuring the secondary market in a unique way, McGuigan added.
“It’s typically something we’d see later in the year, but with a lot more money coming from these tax-aware, more active [separately managed account] strategies, moving forward to October is an interesting development,” McGuigan said. The primary market has managed to clear its supply, although “it’s hard to tell how much of that is from concessionary pricing, and how much of it is putting money back to work after harvesting tax losses.”
