Weaker than expected economic news drove Treasuries higher Thursday morning, but didn’t excite munis enough to get much secondary trading.
“Treasuries are higher but munis are flat,” a New York trader said. “The secondary is quiet.” This trader added some participants have hedged munis by shorting Treasuries, and the opposite trade is happening.
Other traders said despite higher Treasuries, munis weren’t following. “The secondary still looks slow,” a second New York trader said. “The primary looks good since new issue volume is down and there is lots of cash coming in the next 3 months. But there is not much secondary.”
In the primary market, Virginia Housing Development Authority is expected to auction $310 million of revenue bonds, rated A1 by Moody’s and AAA by Standard & Poor’s.
Yields on the Municipal Market Data scale as much as one basis point weaker Wednesday. The 10-year and 30-year yields finished steady at 1.83% and 2.98%, respectively. The two-year held steady at 0.28% for the fifth session.
The Municipal Market Advisors 5% scale also showed yields rising as much as one basis point Wednesday. The 10-year and 30-year yields closed flat at 1.89% and 3.10%, respectively. The two-year yield held steady at 0.33% for a fourth consecutive session.
Treasuries were much stronger. The benchmark 10-year and 30-year yields slipped eight basis points each to 1.88% and 3.09%, respectively. The two-year yield fell one basis point to 0.24%.
In economic news, the consumer price index fell to negative 0.4% while the core rate came in at positive 0.1%, falling short of economists’ expectations.
“The CPI is the third of three April inflation reports that shows no signs of upward inflation pressures,” wrote economists at RDQ Economics. “However, despite to back-to-back monthly declines in headline CPI, there are no signs of deflation either. We think, therefore, that apart from the impact on the rhetoric of the most dovish FOMC members, these inflation data will have no impact on the timing of winding down asset purchases, which we think will be driven by the data on the labor market.”
In other news, housing starts dipped 16.5% to a seasonally adjusted rate of 853,000 in April, falling short of the 973,000 expected by economists.
“There is a lot of volatility to look through to extract the signal in April’s housing starts and building permits data,” RDQ economists wrote. “In part, this comes from the high share that multi-family construction now makes up of overall residential construction activity. Looking through the multi-family noise, the signal from the single-family data appears to be that housing construction remains on the road to recovery.”
In similar news, initial jobless claims jumped 32,000 to 360,000 in the week of May 11, more than economist expected.
“The weekly jobless claims data provide another challenge in extracting signal from noise,” economists at RDQ wrote. “There is no way to know if the rise in claims in the latest week is anything other than volatility. Using the four-week average of claims as our guide, the claims data continue to suggest that the pace of job losses is slowing, which is a good sign for job growth.”
