NEW YORK – The California municipal market was again firmer Wednesday as 10-year munis continued to dip to historically low levels, reaching its third record-low in the past week, while the spread between 10- and 30-year Treasuries was the widest on record.
“There was some sentiment that we’d sort of stabilize at some point and stop the rallying, but it just hasn’t happened yet,” a trader in Los Angeles said. “We have a few more weeks before supply is going to pick up, which will likely make this market do an about-face and see yields come back up to more normal levels, but right now, we’re seeing continued gains and a continuing firmness that’s really sort of persisted for weeks now. We’re a good three basis points better today, maybe even a little more in spots.”
The Municipal Market Data triple-A scale yielded a record-low 2.46% in 10 years and 3.55% in 20 years Wednesday, following levels of 2.51% and 3.58% Tuesday. The scale yielded 3.88% in 30 years Wednesday, following 3.91% Tuesday.
Wednesday’s triple-A muni scale in 10 years was at 91.4% of comparable Treasuries and 30-year munis were at 98.7%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 109.0% of the comparable London Interbank Offered Rate.
The Treasury market showed some gains Wednesday. The benchmark 10-year note was quoted recently at 2.69% after opening at 2.76%. The 30-year bond was quoted recently at 3.93% after opening at 4.00%. The two-year note was quoted recently at 0.52% after also opening at 0.53%.
The 30-year Treasury yield at Wednesday’s close was 124.5 basis points higher than the 10-year Treasury yield, which was the widest spread since the Federal Reserve began tracking 30-year yields in 1977, according to Bloomberg LP. The record has, in fact, been broken in four straight sessions. The widest before 2010 was 113 basis points.
The Treasury Department auctioned $24 billion of 10-year notes with a 2 5/8% coupon at a 2.730% high yield, a price of 99.09. The bid-to-cover ratio was 3.04. The Fed banks bought $1.44 billion for their own account in exchange for maturing securities.
Activity in the California new-issue market was light Wednesday.
In economic data released Wednesday, the U.S. trade deficit surged by a record dollar amount to $49.9 billion in June, the highest level since October 2008.
The June deficit increased by $7.9 billion, or 18.8%, the third straight increase, following a $1.7 billion gain in May.
Economists expected a $42.0 billion trade deficit for the month, according to the median estimate from Thomson Reuters. May’s trade deficit was revised to $42.0 billion from $42.3 billion initially reported.
Previous Session's Activity
The most actively traded security in the state yesterday was taxable California Build America Bonds 7.95s of 2036, which traded 105 times at a high of 109.400 and a low of 105.568.
