NEW YORK – The California municipal market was mostly unchanged with some long-end gains Thursday afternoon as yields began to stabilize after two consecutive volatile sessions.
As market participants dealt with uncertainty over the future of the Build America Bond program, long-end yields rose more than 20 basis points between Tuesday and Wednesday, and 20-year yields climbed to a 17-month high.
Traders said tax-exempt yields were flat to slightly lower.
“We’re better maybe a basis point on two in the long end, but it’s mostly flat,” a trader in Los Angeles said. “There’s a decent amount of activity, but nothing crazy.”
The Municipal Market Data triple-A scale yielded 2.99% in 10 years Thursday, down one basis point from Wednesday’s 3.00%, which was its highest level since 3.01% on Nov. 18, while the 20-year scale remained flat at 4.23%, its highest since July 7, 2009, when it was also 4.23%. The scale for 30-year debt yielded 4.61%, declining one basis point from its highest mark since Nov. 17.
Thursday’s triple-A muni scale in 10 years was at 93.1% of comparable Treasuries and 30-year munis were at 104.8%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 113.8% of the comparable London Interbank Offered Rate.
The Treasury market was mostly firmer Thursday. The benchmark 10-year note was quoted recently at 3.22% after opening at 3.27%. The 30-year bond was quoted recently at 4.40%, after opening at 4.45%. The two-year note was quoted recently at 0.64% after opening at 0.63%.
The Treasury Department Thursday auctioned $13 billion of 30-year bonds with a 4.25% coupon at a 4.410% high yield, a price of 97.35. The bid-to-cover ratio was 2.74. The Federal Reserve banks also bought $189.1 million for their own account in exchange for maturing securities.
In the California new-issue market, Bank of America Merrill Lynch priced $293.5 million of taxable BABs for California's Orange County Local Transportation Authority.
The BABs mature from 2021 through 2025, with a term bond in 2041. The bonds are priced at par, with yields ranging from 5.563% in 2021, or 3.62% after the 35% federal subsidy, to 6.908% in 2041, or 4.49% after the subsidy. The bonds were priced to yield between 235 and 325 basis points over the comparable Treasury yield.
The bonds, which are callable at par in 2020, are rated Aa2 by Moody's Investors Service, AA-plus by Standard & Poor's, and AA by Fitch Ratings.
In economic data released Thursday, initial jobless claims dropped by 17,000 to 421,000 for the week ending Dec. 4, as the four-week moving average for new filings declined for the fifth straight week.
Continuing claims dropped to 4,086,000 for the week ending Nov. 27, the lowest level in more than two years.
Economists expected 426,000 initial claims and 4.25 million continuing claims, according to Thomson Reuters.
Wholesale inventories and sales jumped in October, increasing 1.9% and 2.2% respectively.
Wholesale inventories of durable goods rose 0.9%, the largest increase since July, and inventories of nondurable goods jumped 3.2%. Total wholesale inventories have now expanded 10 straight months.
Wholesale sales rose 2.2% to post their largest gain since March and fourth consecutive monthly increase.
Economists predicted gains of 0.9% for wholesale inventories and 0.6% for wholesale sales.
Previous Session's Activity
The most actively traded security in the state yesterday was taxable California BABs 7.7s of 2030, which traded 159 times at a high of 104.906 and a low of 100.633.
