NEW YORK – The California municipal market was firmer Thursday afternoon amid light to moderate activity in the secondary market.
Traders said tax-exempt yields were lower by one or two basis points overall as 20-year muni yields matched a record low and 30-year tax-exempts edged to within two basis points of its low, according to Municipal Market Data.
“There isn’t a whole lot of movement, but we’re definitely feeling firmer,” a trader in Los Angeles said. “It’s actually fairly flat on the shorter end, but outside of 10 years or so, we’re about a basis point or two better. Probably not more than that.”
The Municipal Market Data triple-A scale yielded 2.31% in 10 years on Wednesday, or two basis points lower than Wednesday’s close, while the 20-year scale yielded 3.28%, or one basis points lower than Wednesday, matching a record low. The scale for 30 year debt shed one basis point, dropping to 3.69%.
The strengthening builds on gains experienced since Tuesday. The three-day rally marks a reversal of the trend that marked the prior three weeks, in which muni yields rose from a series of record lows in late August.
Yields on the 10-year and 30-year triple-A scale bottomed out at 2.17% and 3.67%, respectively, on Aug. 25. The 20-year low of 3.28%, which was matched Thursday, was originally set Aug. 31.
Thursday’s triple-A muni scale in 10 years was at 91.4% of comparable Treasuries and 30-year munis were at 98.9%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 109.5% of the comparable London Interbank Offered Rate.
The Treasury market showed gains Thursday. Appetite for Treasuries began strengthening after the Federal Reserve indicated Tuesday in its monetary policy statement that the economic recovery would be “modest” while inflation would likely remain “subdued.” The central bank suggested further quantitative easing could be possible if conditions warrant — a step that could further reduce interest rates, thereby making Treasuries more attractive.
The benchmark 10-year note was quoted recently at 2.55% after opening at 2.56%, which puts it closer to the calendar year low of 2.47% recorded at the start of this month.
The 30-year bond was quoted recently at 3.74% after opening at 3.75%. Its 52-week low of 3.51% was set Aug. 26.
The two-year note was quoted recently at 0.43% after opening at 0.44%. It yielded a record low 0.416% in intraday trading Tuesday afternoon.
“The tolerance of investors to put money to work at record low levels, which we reached at several points of the yield curve back in August, just forced some buyers to turn the switch and say, ‘This is far enough,’” said James Colby, senior municipal strategist at Van Eck Global. “As cash accumulates, you wait for an opportunity to leg back into the market at higher yields.”
Colby sees little danger of tax-exempt supply outstripping demand anytime soon. Cash continues to flee money market funds and equity mutual funds, he said, with the bond market the prime beneficiary.
“With BABs in the marketplace ... I just think it creates the view that the demand/supply imbalance, in favor of demand, for the muni market will continue.”
In economic data released Thursday, the composite index of leading economic indicators rose for the second straight month in August, increasing 0.3% to 110.2, the Conference Board reported Thursday.
The gain followed an unrevised 0.1% uptick the previous month. Economists polled by Thomson Reuters predicted the LEI would be up 0.1% in August.
Existing home sales rebounded in August from a record low in July, rising 7.6% to a seasonally adjusted annual rate of 4.13 million, the National Association of Realtors reported Thursday.
Sales rebounded from a 3.84 million pace in July, which was the lowest since the NAR started the current index of existing home sales in 1999.
Initial jobless claims rose to 465,000 for the week ending Sept. 18, from a revised 453,000 the previous week, the Labor Department reported Thursday.
Continuing claims fell to 4.489 million from 4.537 million for the week ending Sept. 11.
Economists expected 450,000 initial claims and 4.450 million continuing claims, according to the median estimate from Thomson Reuters.
Activity in the California new-issue market was light Thursday.
Previous Session's Activity
The most actively traded security in the state yesterday was Reedley 5.15s of 2035, which traded 144 times at par.
