The municipal market was weaker yesterday, despite Treasury market gains. Traders said tax-exempt yields were higher by about four basis points.
"We're just kind off picking up where we left off Monday," a trader in New York said. "There's not a ton of activity, but there's a good amount of weakness out there, even though you're seeing a bump in Treasuries. We're off a good couple basis points, maybe more in spots."
"It's a tough market, and now going into a holiday, people generally will want to pare down positions and not keep positions over what are going to be very limited trading days tomorrow and Friday," said Howard Mackey, president of the broker-dealer business unit of Rice Financial Products. "So it's going to amount to a very long weekend that's going to start by Wednesday afternoon. And so, with that hiatus looming, you're not going to see much activity for the rest of this week."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. A dealer sold to a customer New York City 5.375s of 2025 at 5.69%, up four basis points from where they were sold Tuesday. A dealer sold to a customer Dormitory Authority of the State of New York 5s of 2026 at 5.30%, four basis points higher than where they traded Tuesday. A dealer sold to a customer California 4.5s of 2027 at 6.24%, up four basis points from where they traded Tuesday.
"Not a lot of liquidity out there," a trader in Los Angeles said. "It's pretty hard to get anything done right now, and I don't think that's going to change much until after the holiday. A lot of people pretty much wrote this off as a dead week, and it's playing out sort of that way. There's weakness out there, but not a ton of activity."
The Treasury market showed gains yesterday, as investors moved to Treasuries in the wake of the Federal Reserve's plan to purchase as much as $600 billion of mortgage securities. The yield on the benchmark 10-year Treasury note, which opened at 3.32%, finished at 3.09%. The yield on the two-year note was quoted near the end of the session at 1.15% after opening at 1.28%. The yield on the 30-year bond, which opened at 3.79%, was quoted near the end of the session at 3.62%.
"Treasury rates are going to continue to go lower," Mackey said. "I think that right now, the only tug you have is you've gotten through the auctions. The major overhanging loom of the auctions is behind us, so we've seen rates start to come back in again and head towards the levels we saw several days ago. And I think we're going to probably hit the 3% level on the 10-year fairly soon."
In the new-issue market yesterday, JPMorgan priced $110 million of special tax revenue bonds for Arlington, Tex. The bonds mature from 2017 through 2020, with a term bond in 2027. Yields range from 4.50% with a 5% coupon in 2017 to 5.73% with a 5.5% coupon in 2027. The bonds, which are callable at par in 2018, are insured by Berkshire Hathaway Assurance Corp. The underlying credit is rated A2 by Moody's Investors Service and A by both Standard & Poor's and Fitch Ratings.
Banc of America Securities LLC priced $72.5 million of revenue bonds for the California Educational Facilities Authority. The bonds mature from 2009 through 2037, with yields ranging from 2.45 with a 4% coupon in 2010 to 5.95% with a 5.625% coupon in 2037. Bonds maturing in 2009 were not formally re-offered. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's.
Merrill Lynch & Co. priced $50.1 million of general obligation bonds for Hawaii County. The bonds mature from 2010 through 2028, with yields ranging from 2.43% with a 4% coupon in 2010 to 5..59% with a 5.25% coupon in 2028. The bonds, which are callable at par in 2018, are rated A1 by Moody's, AA-minus by Standard & Poor's, and A-plus by Fitch.
In economic data released yesterday, the preliminary third quarter gross domestic product dipped 0.5%, after a 0.3% decline the previous reading. Economists polled by Thomson Reuters had predicted a 0.5% decrease.
The consumer confidence index increased in November, rising to 44.9 from an upwardly revised 38.8 last month. Economists polled by Thomson predicted the index would remain 38.0.
Additional economic data will be released today as the market prepares for a Thanksgiving day pause. October personal income and consumption, including the core personal consumption expenditures deflator, October durable goods, initial jobless claims for the week ended Nov. 22, continuing jobless claims for the week ended Nov. 15, the November Chicago purchasing managers index, the final November University of Michigan consumer sentiment index, and October new home sales will all be released.
Economists polled by Thomson are predicting a 0.1% rise in personal income, a 0.9% drop in personal consumption, no change to the core PCE deflator, a 2.6% dip in durable goods, a 1.5% decline in durable goods excluding transportation, 537,000 initial jobless claims, 4.050 million continuing jobless claims, a 36.5 Chicago PMI, a 57.9 Michigan sentiment index, and 450,000 new home sales.
