Muni Trading Sporadic on Bernanke, Hurricane News

A distracted municipal market saw sporadic trading in the secondary Friday.

Industry minds were focused instead on how Federal Reserve Board chairman Ben Bernanke's speech achieved little after great anticipation while a hurricane barreled north along the eastern seaboard, the Labor Day weekend looms, and this week's new issuance might best be characterized as crumbs.

"No one was reaching today," a trader from New York said. "On the bid side, it really depends. You bid a number on a hundred bonds and you buy it. Then you bid on another hundred bonds and you don't buy it. It doesn't make sense."

The market received little push from the statement issued by Bernanke at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyo. In it, he made no intimation that another round of quantitative easing was imminent.

Some in the marketplace saw in the language of the Aug. 9 Federal Open Market Committee an indication that Bernanke might flood the financial markets with money a third time to stimulate the economy.

Bernanke, though, did say it was rather likely that the federal funds rate would be held to a range of zero to 25 basis points "for at least two more years." The municipal market response was mostly muted.

Muni investors used the occasion for the Bernanke speech as an excuse all week not to step in and buy the market, a trader in Florida said. "Now we have to look forward to [President] Obama's speech and the Fed meeting," he added.

"We have additional reasons, outside the holiday week, to sit on our hands. I don't expect anything over the next few days, into next week, to take place. So, munis are probably at a standstill, at this point."

Secondary volume stood at just over $5 billion heading into the afternoon, around which time many traders were packing up and calling it a week. This represented an average amount for a Friday in late August, another New York trader said.

Tax-exempt yields were steady across the front and back ends of the curve Friday, according to the Municipal Market Data scale. Securities maturing between 2018 and 2032 ended one basis point higher.

The 10-year muni yield edged up one basis point to 2.26% at Friday's close. For the week, it rose 11 basis points from its all-time low of 2.15%.

The 30-year muni yield was unchanged at 3.88%. It rose nine basis points on the week. The two-year yield also remained at 0.30% for a 13th straight session, hovering at its lowest yield in more than 40 years.

Treasury yields ended Friday lower. The 10-year benchmark yield, after sliding seven basis points Thursday, dropped another four basis points to 2.19%. For the week, it rose 12 basis points

The 30-year yield, after slipping five basis points Thursday, fell another six basis points to 3.54%, but ended the week 15 basis points higher.

The two-year yield ticked down two basis points to 0.20%. It was flat for the week.

New issuance, historically low on the week preceding Labor Day, is expected to be anemic. According to industry estimates, municipal bond sales scheduled for this week total $1.2 billion, compared to a revised $3.5 billion last week.

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