NEW YORK — The California municipal market was weaker by as much as 10 basis points Tuesday afternoon as increasing uncertainty over the future of the Build America Bonds program weighed heavily on secondary trading.
Traders said tax-exempt yields were higher by one or two basis points within five years, three to five basis points in maturities from six to 20 years, and by eight to 10 basis points on the long end.
An extension of the BAB program, which is set to expire on Dec. 31, was not part of the framework for a compromise tax bill that was agreed to Monday night by key lawmakers from both parties and administration officials, congressional sources confirmed Tuesday morning.
"The weakness was definitely more substantial and more widespread out long, but you felt it no matter where in the curve you're talking or what you were trading," a trader in San Francisco said. "Treasuries got hammered after the tax compromise and we followed right along. Markets don't particularly like uncertainty, and that's exactly what we're looking at now with a possible BAB extension."
The Municipal Market Data triple-A scale yielded 2.87% in 10 years Tuesday, up six basis points from Monday's 2.81%, while the 20-year scale yielded 4.11%, nine basis points higher than Monday. The scale for 30-year debt increased 12 basis points, to 4.48% from 4.36%.
Tuesday's triple-A muni scale in 10 years was at 90.8% of comparable Treasuries and 30-year munis were at 101.6%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 108.2% of the comparable London Interbank Offered Rate.
The Treasury market sold off Tuesday while stocks rallied following the tax compromise, which will include a two-year extension of President Bush's tax cuts.
The benchmark 10-year note was quoted recently at 3.11% after opening at 2.92%. The 30-year bond was quoted recently at 4.38%, after opening at 4.24%. The two-year note was quoted recently at 0.53% after opening at 0.42%.
The Treasury Department Tuesday auctioned $32 billion of three-year notes with a 3/4% coupon at a 0.862% yield, a price of 99.67. The bid-to-cover ratio was 2.91. The Federal Reserve banks also bought $465. 5 million for their own account in exchange for maturing securities.
The economic calendar was light Tuesday.
Activity in the California new-issue market was light Tuesday.
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.
