NEW YORK – The California municipal market rallied to all-time lows for the 12th time in the past three weeks Wednesday, pushing 10-year tax-exempt yields below 2.20% and 30-year munis lower than 3.70% for the first time in history.
Traders said tax-exempt yields were better by three to five basis points overall amid light to moderate secondary trading activity.
“The demand for muni paper is just constant,” a trader in Los Angeles said. “It’s already becoming harder to find paper out in the Street. There is a need for new issuance, but it’s not coming this week. Today you saw more a flight-to-quality, which we’ve been getting lately. Any way you slice it, though, it’s another day, another record. And I’m not sure scraping the bottom just yet.”
The Municipal Market Data triple-A scale yielded record lows of 2.17% in 10 years and 3.30% in 20 years Wednesday, following 2.23% and 3.34% Tuesday. The scale yielded an all-time low of 3.67% in 30 years Wednesday, following 3.70% Tuesday.
Wednesday’s levels mark the 12th all-time low in 10-year munis set in the past 14 sessions. Also, 20- and 30-year tax-exempts reached record lows for the fourth time in five sessions.
Wednesday’s triple-A muni scale in 10 years was at 89.6% of comparable Treasuries and 30-year munis were at 104.2%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 115.6% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Wednesday. The benchmark 10-year note was recently at 2.54% after opening at 2.49%.
The 30-year bond was recently quoted at 3.59% after opening at 3.56%. The two-year note was at 0.52% after opening at 0.49%.
The Treasury Department auctioned $36 billion of five-year notes, with a 1 1/4% coupon, a 1.374% high yield, a price of 99.40. The bid-to-cover ratio was 2.83. The Fed banks bought $881.4 million for their own account in exchange for maturing securities.
Six municipal bond exchange-traded funds touched all-time highs today.
Muni ETFs attempt to replicate the performance of a benchmark index, providing a theoretical real-time proxy for investors' assessment of where muni indexes are heading.
Funds reaching new apexes today included ETFs devoted to indexes tracking two Build America Bond indexes, and Standard & Poor's indexes following tax-free municipals maturing respectively in 2014, 2015, and 2016.
A half-dozen other funds reached 52-week highs, though not all-time highs. These included ETFs devoted to indexes tracking the Barclays Capital AMT-Free Long Municipal Index, the Barclays Capital Municipal Managed Money Index, two short-term indexes from Barclays and Standard & Poor's, and a Merrill Lynch index tracking long-term insured bonds in New York.
Activity in the California new-issue market was light Wednesday.
In economic data released Wednesday, new orders for durable goods increased 0.3% in July, the first rise in three months, on a large gain in nondefense aircraft purchases as orders excluding transportation sank.
Excluding transportation orders, durable goods fell 3.8%, more than expected and the largest drop in 18 months.
Economists expected durable goods would fall 1.2% and orders excluding transportation goods would decline 0.9%, according to the median estimate from Thomson Reuters.
New home sales fell 12.4% in July to a record low of 276,000 sales at a seasonally adjusted annual rate as sale prices also dropped.
Home sales in June were revised lower to 315,000 from 330,000. May’s sales were revised higher to 281,000 from 267,000, which was the previous record low. Records for this series date back to 1963.
Economists expected 330,000 home sales for the month, according to the median estimate from Thomson Reuters.
Previous Session's Activity
The most actively traded security in the state yesterday was California 4.5s of 2030, which traded 69 times at a high of 99.644 and a low of 95.299.
