Tax-exempt yields started Wednesday's trading session lower in reaction to comments Federal Reserve Chairman Ben Bernanke made to Congress regarding the status of the accommodative monetary policy currently in place.
On slow activity, the muni market appears stronger in the intermediate part of the yield curve so far, traders say. The price movements are not welcome, they add, as more expensive municipals will likely sideline much-needed retail investor interest in tax-exempts.
"Right now, it's pretty quiet," a trader in New York said. "Yields coming way in is just going to push retail investors back. It's going to put them on the sidelines again, which is unfortunate; we need this to sell off."
In his semiannual
The muni market is paying close attention to Bernanke's scheduled two-day testimony on Capitol Hill. Last month, his comments sent bond market yields rocketing.
At the same time, the market expects a sizable increase in new issuance this week, at roughly $9.65 billion, according to Ipreo LLC and The Bond Buyer. Last week, a revised $5.38 billion arrived, according to Thomson Reuters.
In the negotiated market, Goldman, Sachs & Co., moved up by a day pricing for the year's biggest deal: a total of $2.92 billion in Grand Parkway Transportation Corp. system toll revenue bonds in tax-exempt and taxable deals. By press time Tuesday, traders said the deal arrived priced a bit cheaper than anticipated.
It's possible that underwriters accelerated the deal "to get out ahead of any reaction to Bernanke's Congressional testimony," Alan Schankel, a managing director in Janney Capital Market's muni group.
Tax-exempt yields opened the day's session lower in the belly of the curve, according to one market gauge. Yields were steady through five years and beyond 16 years. Those between six and 16 years were flat to three basis points lower, with the greatest strength between nine and 13 years.
The 10-year triple-A tax-exempt fell two basis points by Tuesday's close to 2.64%, according to the Municipal Market Data scale read. The 30-year yield held at 4.00%, while the two-year steadied at 0.45% for the fourth session.
Yields on the Municipal Market Advisors 5% scale ended mostly firmer on Tuesday, falling between one and five basis points at various parts of the curve. The 10-year yield fell two basis points to 2.82%. The 30-year yield held steady at 4.11%. The two-year remained at 0.54% for the fourth straight session.
Treasuries have fallen across the curve Wednesday morning. The benchmark 10-year yield tumbled six basis points to 2.47%. The two-year yield slid three basis points to 0.30%, while the 30-year yield also dropped three basis points to 3.55%.
In other economic news, the Commerce Department reported Wednesday that housing starts plunged in June, down 9.9% to a seasonally adjusted annual rate of 836,000 units. Building permits fell 7.5% to an annual rate of 911,000 units.
Economists polled by Thomson Reuters estimated 960,000 housing starts and a 1,000,000 rate for permits.
