NEW YORK – The tax-exempt market continued to weaken for its third consecutive trading session as the 13 basis point hit the market took yesterday wasn’t enough to halt additional losses Thursday morning.
“Several muni [mutual] funds were at all-time highs, so the sell-off is not surprising and very typical,” a trader tweeted. “Many still are quite high.”
Munis were weaker still Thursday morning, according to the Municipal Market Data scale. Yields inside five years were flat to one basis point weaker. Yields outside six years rose up to three basis points.
On Wednesday, the two-year yield closed three basis points higher at 0.30%. The 10-year yield jumped 13 basis points to finish at 2.17% while the 30-year yield rose 9 basis points to close at 3.40%.
The last time the two-year hit this level was Feb. 6. The 30-year yield hasn’t risen to this level since Jan. 10. The 10-year muni rose to levels not seen since Dec. 5, 2011.
Treasuries were slightly stronger Thursday morning. The two-year yield fell two basis points to 0.39%. The benchmark 10-year yield and the 30-year yield each fell two basis points to 2.27% and 3.40%.
In the primary market, Morgan Stanley is expected to price $277.9 million of Louisville/Jefferson County Metro Government Catholic health initiatives revenue bonds, rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Wells Fargo is expected to price $175.7 million of Charlotte, N.C., general obligation refunding bonds, rated triple-A by the major rating agencies.
Muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became relatively more expensive. Since munis started weakening on Tuesday, the five-year ratio fell to 80.2% from 86.8% at the start of the week. The 10-year ratio fell to 95.6% from 99.5%. The 30-year ratio fell to 99.7% from 103.8% on Monday.
The 10- to 30-year slope of the curve fell this week as investors went further out on the yield curve. The slope fell to 123 basis points on Wednesday from 127 basis points at the beginning of the week.
In economic news, seasonally adjusted initial jobless claims fell 14,000 to 351,000 for the week ending March 10. Continuing claims fell 81,000 to 3.343 million for the week ending March 3.
Initial claims were lower than the 359,000 expected by economists. Continuing claims were also lower than the 3.410 million expected.
“The four-week average of initial jobless claims has drifted slightly lower since the February employment survey week,” wrote economists at RDQ Economics. “Next week’s claims data cover the week that corresponds with the March employment survey week but at this point the jobless claims data are consistent with another fairly solid increase in payrolls in March.”
In other economic news, the producer price index rose 0.4% in February, following a 0.1% increase in January, while the core increased 0.2%. The increase in the headline number was less than the 0.5% gain expected by economists, but the core was right on target.
“Headline PPI inflation has moderated since last summer as increases in food and energy prices have pulled back,” RDQ economists wrote. “Away from food and energy, core finished goods prices have risen 3.0% on a year-over-year basis in each of the last three months, the highest rate since the summer of 2009.”
In other economic news, the Philadelphia Federal index climbed to 12.5 in March from 10.2 in February, higher than the 12.0 expected by economists.
