Market Post: Munis Weaker, But Busier

After a steady and quiet session Monday, the tax-exempt market was showing signs of life in Tuesday morning trading.

Traders said the market was weaker, but much busier than it has been recently. This comes as several large deals are expected to price in the primary market.

"People are cutting but bonds are trading," a New York trader said. "So we are weaker, but busy."

In the primary market Tuesday, JPMorgan and Wells Fargo Securities will hold the first day of retail for $10 billion of California revenue anticipation notes, rated MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's and F-1 by Fitch Ratings. A second retail order period is expected Wednesday followed by institutional pricing on Thursday.

Goldman, Sachs & Co. is expected to price $500 million of Chicago Board of Education unlimited-tax GOs, rated A1 by Moody's and A-plus by S&P and Fitch.

In the competitive market, San Francisco is expected to auction $290.32 million of GOs, rated Aa2 by Moody's and AA by Standard & Poor's.

The New Jersey Environmental Infrastructure Trust will auction $208.76 million triple-A rated revenue bonds in two transactions - a $198.42 million deal and $10.34 million.

On Monday, the 10-year Municipal Market Data yield closed steady at 1.76% while the 30-year yield finished flat at 2.92%. The two-year finished steady at 0.29% for the 13th consecutive session.

Treasuries were much weaker. The benchmark 10-year yield jumped five basis points to 1.71% while the 30-year yield spiked up seven basis points to 2.81%. The two-year yield rose two basis points to 0.29%.

In economic news, the producer price index rose 0.3% in July, beating analyst expectations of a 0.2% increase. The core producer price index increased 0.4%, the fastest jump since January.

In other economic news, retail sales increased 0.8% to $403.9 billion in July following a revised 0.7% decrease in June. The July figures beat the 0.3% expected gain.

"Retail sales posted a solid gain in July with strength displayed almost across the board," wrote economists at RDQ Economics. "However, after factoring in a small downward revision to June and a decline in the auto sales data on an industry basis for July, we are only upping our estimate for real PCE growth to 1.75% to 2% for the third quarter versus a range of 1.5% to 1.75% before this report. This report continues to support the emerging view that growth has not downshifted further at the start of the third quarter but may actually be showing a small pickup in activity. We remain of the view that a decision to ease further at the September 12-13 FOMC meeting is far from a done deal."