NEW YORK – Short to intermediate-range municipal yields edged higher Wednesday, though tax-exempts were mostly flat on the long end.
Traders said tax-exempt yields were higher by three to five basis points inside the 10- to 15-year range, but mostly unchanged out longer.
“I think our string of firmness is pretty much over at this point,” a trader in Los Angeles said. “There’s just no way we were going to see yields stay that low with any sort of supply in the market. I would think that we’ll be ticking higher and higher in yield going forward, at least for the next little while.”
The Municipal Market Data triple-A scale yielded 2.32% in 10 years and 3.33% in 20 years Wednesday, following 2.27% and 3.33% Tuesday. The scale yielded 3.72% in 30 years Wednesday, matching Tuesday.
Tax-exempts have now opened September with an uptick in yield in at least one of the three maturities the first five sessions of the month after doing so just once the entire month of August.
Before the recent sell-off, yields dropped to all-time lows in 10-year munis 12 times in the prior 17 sessions. Also, 30-year tax-exempts set record lows four times in the previous eight sessions, while 20-year munis established all-time lows five times over the same time period.
The record lows currently stand at 2.17% and 3.67% in 10- and 30-year tax-exempts, both established August 25. The 20-year low of 3.28% was set August 31.
Wednesday’s triple-A muni scale in 10 years was at 87.5% of comparable Treasuries and 30-year munis were at 99.7%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 111.0% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Wednesday. The benchmark 10-year note was recently at 2.66% after opening at 2.59%.
The 30-year bond was recently quoted at 3.72% after opening at 3.66%. The two-year note was at 0.52% after opening at 0.48%.
The Treasury Department auctioned $21 billion of 10-year notes with a 2 5/8% coupon at a 2.67% high yield, a price of 99.61. The bid-to-cover ratio was 3.21. The Fed banks bought $227.2 million for their own account in exchange for maturing securities.
Though the economic calendar was light Wednesday, some Federal Reserve districts reported that moderate economic growth was tempered by “widespread signs of a deceleration” from mid-July through the end of August in the latest installment of the Fed’s “beige book” of economic activity.
The results of the survey by the 12 regional Fed banks were released Wednesday. Five districts reported modest economic growth and two reported “positive developments.” The remaining five reported “mixed conditions or a deceleration in economic activity.” Eight Fed banks reported economic expansion in the previous edition of the beige book, released July 28.
In a commentary, Steven Wood, chief economist at Insight Economics, wrote that “this report suggests that the [Federal Open Market Committee] will continue to maintain an extremely low funds rate target for an extended period of time.”
“The Fed is clearly more concerned about sustaining and strengthening the incipient economic recovery that about potential future inflationary pressures, especially given the current low level of core inflation,” he wrote.
Activity in the California new-issue market was light Wednesday.
Previous Session's Activity
The most actively traded security in the state yesterday was taxable Sonoma County 6s of 2029, which traded 83 times at a high of 102.705 and a low of 99.500.
