NEW YORK – The California municipal market was slightly firmer Friday, with yields declining for the 12th consecutive session amid fairly light secondary trading activity.
“We’re a bit firmer, mostly in the belly of the curve,” a trader in Los Angeles said. “It’s pretty quiet, but there are some bits and pieces trading.”
The Municipal Market Data triple-A 10-year scale fell four basis points Friday to 2.99%, the 20-year dipped four basis points to 4.26%, and the scale for 30-year bonds remained at 4.69%.
In the daily MMD commentary, Randy Smolik wrote “another week of light issuance next week and buoyant Treasuries kept the tax-exempt sector moving to lower yields.”
“The belly of the curve is where the performance was,” he wrote. “With the threat of violent clashes in Libya over the weekend, the flight-to-safety bid lingered. Extended rallies can be tiresome and the muni market was in their 12th day of making lower yields. But, supply remains very light.
“With the tax-exempt calendar next week totaling a modest $1.7 billion, we now see 2011 tax-exempt supply at only 55% of the 2010 pace year to date,” Smolik wrote. “Little wonder every day seemed to be a scramble to fill re-investment inquiry.”
Friday’s triple-A muni scale in 10 years was at 87.4% of comparable Treasuries and 30-year munis were at 104.0% according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 109.3% of the comparable London Interbank Offered Rate.
Treasuries showed gains Friday. The benchmark 10-year note was quoted recently at 3.42% after opening at 3.48%. The 30-year bond was quoted recently at 4.51% after opening at 4.58%. The two-year note was quoted recently at 0.73% after also opening at 0.75%.
Activity in the California new-issue market was light Friday.
In economic data released Friday, real gross domestic product expanded 2.8% at an annual rate in the fourth quarter, revised sharply lower from the initial estimate of 3.2% growth released last month, as consumer spending and government spending were revised down.
Consumer spending, which accounts for about 70% of GDP, increased 4.1% for the quarter ending Dec. 31. Revised retail sales data for November and December dragged the sector lower from the initial estimate of a 4.4% gain.
State and local government spending was also revised lower based on the latest construction spending figures. Spending by state and local governments fell 2.4% in the fourth quarter, revised down from a 0.9% drop initially reported.
The smaller fourth quarter brought down GDP growth for all of 2010. The U.S. economy expanded 2.8% in 2010, down from the 2.9% growth estimated last month, but still the largest annual GDP gain since 2005.
Personal consumption expenditures, excluding food and energy goods, increased 0.5% for the quarter, revised up from a 0.4% rise reported last month. The fourth quarter core PCE growth, which matched a 0.5% increase in the third quarter, is still a record low dating back to 1959.
Economists expected GDP to increase 3.3% for the quarter and for core PCE to gain 0.4%, according to the median estimate from Thomson Reuters.
Previous Session's Activity
The most actively traded security in the state yesterday California 5s of 2036, which traded 31 times at a high of 102.484 and a low of 97.573.
