Market Post: Five- to 10-Year High Grades Push Market Firmer

The tax-exempt market started a "manageable" week off on a firm note as demand outweighed supply.

The primary market this week can expect $5.77 billion, up from last week's revised $5.61 billion. On the negotiated calendar, $4.67 billion should be priced, up from last week's revised $3.61 billion. On the competitive side, the market can expect $1.10 billion to be auctioned, down from last week's revised $2 billion.

Traders said the market was quiet, but firm, Monday morning. "This week's supply seems very manageable," a New York trader said. "I am seeing high grades in the five- to 10-year range that seem OK so someone is buying a few things this morning. It's firm at the moment."

Municipal bond scales ended as much as three basis points lower Friday, posting more gains than the market did all week.

Yields on the Municipal Market Data 5% triple-A GO scale ended as much as three basis points lower. The 10-year yield fell one basis point to 1.69% and the 30-year yield slid three basis points to 2.87%. The two-year closed steady at 0.29% for the 16th session.

Yields on the Municipal Market Advisors 5% scale also ended as much as three basis points lower. The 10-year and 30-year yields fell two basis points each to 1.75% and 3.00%, respectively. The two-year was flat at 0.32% for the 16th session.

Treasuries were stronger Monday morning. The two-year and benchmark 10-year yields fell one basis point each to 0.22% and 1.66%, respectively. The 30-year yield dropped two basis points to 2.85%.

In economic news, personal income grew 0.2% in March while spending also rose 0.2%. Income came in less than economists' expected by spending beat expectations.

"This report, though seemingly dated news since it covers March, contains some quite good news for the prospects for second-quarter real PCE growth," wrote economists at RDQ Economics. "The path of spending gains through the first quarter is now slightly skewed towards the end of the quarter given revisions and the larger-than-expected advance in real PCE in March. This makes it much more likely than we thought for real PCE to post a solid gain in the second quarter and increases the chances that real GDP growth in the second quarter will come in above 2%."

The economists added, "There is nothing on the inflation front for the Fed to worry about-indeed with headline inflation rates at 1.0% on a year-over-year basis, the majority at the Fed are more likely to be concerned that inflation is too low."

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