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Market Post: Munis Steady as Biggest Deals Flood Market

Trading in the tax-exempt market was steady Wednesday morning as many of the week's largest deals hit the primary.

Traders said they were focused on the primary as the largest deals were expected to price.

Barclays is expected to price $654.2 million of Minnesota State general fund appropriation refunding taxable and tax-exempt bonds.

Bank of America Merrill Lynch is expected to price $345.7 million of Dallas and Fort Worth International Airport bonds, rated A1 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch Ratings.

Citi is expected to price $250 million of Orlando-Orange County Expressway Authority refunding revenue bonds, rated A2 by Moody's and A by Standard & Poor's and Fitch.

B of A Merrill is then expected to come with $207.5 million of additional Orlando-Orange County Expressway Authority refunding revenue bonds.

In the competitive market, Tennessee is expected to auction $140 million of general obligation bonds, rated Aaa by Moody's.

On Tuesday, the Municipal Market Data scale posted gains for the sixth consecutive session and record low yields were set. The 10-year yield dropped two basis points to 1.55%, setting a record low as recorded by MMD. The 1.55% beat the previous record of 1.57% set Friday. Before that, the record low was 1.59% set Thursday.

The 30-year MMD yield also fell two basis points to 2.64%, also setting a record low as recorded by MMD. The 2.64% beat the previous record of 2.66% set Friday and 2.69% set Thursday.

The two-year finished steady at 0.30% for the 33rd consecutive trading session.

Treasuries were slightly weaker Wednesday morning. The benchmark 10-year yield rose one basis point to 1.60% while the 30-year yield increased two basis points to 2.74%. The two-year was steady at 0.25%.

In economic news, the October producer price index fell 0.2% while the core rate declined 0.2%. The numbers failed to meet economist expectations of a 0.2% increase in the headline number and a 0.1% core increase.

"Core wholesale price inflation appears to have been distorted by the model-year changeover in vehicles, which appears to have subtracted 0.3% points from core finished goods prices," wrote economists at RDQ Economics. "Despite this volatility, headline finished goods prices have risen at an 11.0% rate over the last three months on strong increases in energy prices. Government controls will distort the 'true' price of gasoline in November since the shortages in the Northeast following Hurricane Sandy imply a higher shadow price for gasoline than retailers were allowed to charge."

They added, "From the perspective of the Fed, the majority on the FOMC will find little to worry about here but the CPI data are far more important than wholesale prices. We are concerned that over the longer run, QE will increase the demand for hard assets, putting upward pressure on inflation as the economy continues to recover."

In other economic news, October retail sales slipped 0.3% while excluding autos sales were flat. Economists had expected a 0.2% decline in sales but a 0.2% jump in sales excluding autos.

"Despite the decline in retail sales in October, total sales over the last three months have grown fairly rapidly," RDQ economists wrote. However, much of the growth has been outside of the areas that directly impact the consumer spending measure in the calculation of real GDP. Storm effects could not be quantified in this report but will likely have a bigger impact in November."

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