Market Post: Munis Weaker But Traders Still Optimistic

The tax-exempt market opened weaker Monday morning as muni yields followed Treasury yields higher. While munis were a tad weaker, traders said they were still positive about the market.

"We are not seeing any selling pressure in the market," a New York trader said. "We are relatively constructive on the market with a lack of supply this week and the decent technicals in the short-term."

He added munis are a tad weaker, but are most likely following Treasuries. "We don't view it as being a result of any selling pressure. We have sold more bonds than we've bought this morning but that's based on a couple trades."

This week, the municipal bond market can expect $6.41 billion in new issuance, down from last week's revised $7.22 billion. The negotiated market can expected $4.59 billion, down slightly from last week's revised $4.76 billion. On the competitive calendar, $1.82 billion should be auctioned, down from last week's revised $2.46 billion.

Most reads on the municipal bond market showed weakening Friday.

The Municipal Market Data scale ended lower Friday. The 10-year yield jumped six basis points to 1.75% while the 30-year yield spiked five basis points to 2.79%. The two-year finished steady at 0.33% for the seventh session.

The Municipal Market Advisors 5% coupon triple-A benchmark scale also showed weakening. The 10-year yield rose five basis points to 1.77% while the 30-year yield jumped six basis points to 2.88%. The two-year was steady at 0.34% for the ninth consecutive trading session.

Treasuries were weaker Monday morning. The benchmark 10-year yield and the 30-year yield jumped three basis points each to 1.99% and 3.17%, respectively. The two-year yield rose one basis point to 0.29%.

In economic news, durable goods orders rose 4.6% to $230.7 billion in December after an increase of 0.7% in November. Excluding transportation, new orders jumped 1.3%.

Both figures beat economists' expectations of a 1.8% increase in durable goods orders and a 0.7% rise excluding transportation.

"With the exception of computers, every major industry category posted double-digit annualized gains in orders over the last three months of 2012, which provides something of an offset to the weaker regional manufacturing surveys we have seen thus far in January," wrote economists at RDQ Economics. "Many categories of orders posted gains in every month in the fourth quarter and we are particularly encouraged by the increases in orders for nondefense capital goods excluding aircraft."

They added that "We believe that manufacturing will experience stronger growth in 2013 on improved trends in the global economy and a pickup in capital spending, although we still expect January ISM to dip below 50 based on the weakness in the regional surveys."

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