Market Post: Rise in Treasuries Pulling Muni Yields Higher

The upward movement of Treasury yields following the Federal Reserve's announcement it will begin tapering its bond buying has started to tug municipals higher as Thursday's session pushes into the afternoon.

Muni yields have risen in the late-intermediate part of the yield curve and appear weaker in the secondary market, a trader in Chicago said.

"News of the tapering got the stock market all wild and crazy yesterday, and bonds are off a bit," he said. "People are trying to posture a bit for the end of the year. If you've got to get something done, it'll cost you to do that, and if you want to get something done, it's going to cost you, as well."

The residual effects from the Fed news pushed munis, as well, though not as dramatically. The Federal Open Market Committee announced Wednesday it would cut the rate of its purchases of longer-term Treasuries and mortgage-backed securities to $75 billion per month from $85 billion per month.

The intermediate sector's "moving up well, and hasn't had much downtime as the 10-year's been moving," the trader said. "Now [Treasury yields] are starting to adjust our levels a little bit."

In addition, industry watchers anticipated a far lighter load of new issues on the week. Potential muni volume fell to an estimated $2.59 billion, compared with the hefty $10.63 billion of sales that arrived last week. The week's largest issues have already priced.

Yields on the Municipal Market Data triple-A scale Thursday are steady through two years on the curve, but have risen up to four basis points thereafter. They appear weakest between four and 15 years on the curve.

The triple-A, tax-exempt 10-year closed Wednesday one basis point higher at 2.71%. The 30-year rose two basis points to 4.16%. The two-year yield held at 0.33% for a 24th consecutive session.

Yields on the Municipal Market Advisors benchmark triple-A scale weakened mostly beyond two years on the curve by up to two basis points. The 10-year and the 30-year inched up one basis point each to 2.74% and 4.40%, respectively. The two-year held at 0.36%.

Treasury yields across much of the curve resumed their climb Thursday, continuing on an upward trajectory since Wednesday. The benchmark 10-year yield has jumped five basis points to 2.94%, while the two-year has climbed four basis points to 0.38%. The 30-year yield has held at 3.90%.

In economic news, the National Association of Realtors announced Thursday that existing home sales fell 4.3% to a seasonally adjusted 4.90 million-unit rate in November from an unrevised 5.12 million pace the previous month.

Economists surveyed by Thomson Reuters anticipated a median sales rate of 5.03 million for November. Furthermore, last month's rate decreased by 1.2% from November 2012, falling below the previous year's level for the first time in 29 months, according to NAR Chief Economist Lawrence Yun.

 

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