NEW YORK – Yields in the California municipal market edged higher for the first time this month Friday following comments by Federal Reserve chairman Ben Bernanke that indicated the Fed would take “unconventional measures” to fix the economy if needed.
Traders said tax-exempt yields were higher by two basis points overall.
“There really wasn’t much activity, but Bernanke’s comments pushed Treasuries higher and that carried over to us,” a trader in Los Angeles said. “But other than that, there wasn’t a ton trading today. There are some people out. It’s that time of year. I’m not sure I would have cut the scale today just because there’s so little trading, but it did feel a bit weaker.”
The Municipal Market Data triple-A scale again yielded record lows of 2.17% in 10 years and 3.32% in 20 years Thursday, following record lows of 2.17% and 3.30% Thursday. The scale yielded 3.69% in 30 years Thursday, following Thursday’s all-time low of 3.67%.
Though yields increased Friday, yields have still dropped to all-time lows in 10-years munis 12 times in the past 15 sessions. Also, 20- and 30-year tax-exempts reached record lows four times in the past six sessions.
Friday’s triple-A muni scale in 10 years was at 82.6% of comparable Treasuries and 30-year munis were at 100.0%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 109.8% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Friday. The benchmark 10-year note was recently at 2.65% after opening at 2.47%.
The 30-year bond was recently quoted at 3.70% after opening at 3.54%. The two-year note was at 0.57% after opening at 0.51%.
Activity in the California new-issue market was light Friday.
The Federal Reserve Board realizes that further monetary policy accommodation could be needed in the future and the Fed is prepared to take “unconventional measures” if needed because the economic outlook deteriorated “significantly,” Fed Chairman Ben S. Bernanke told the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyo., Friday.
In a commentary, Diane Swonk, chief economist at Mesirow Financial, wrote that “the Chairman was clear in both his overt remarks and his body language that although the Federal Open Market Committee does not have a consensus view about what to do in these uncertain and unchartered waters, he was willing to do something rather than nothing.”
“The Board of Governors, in particular, has an ability to act without the approval of the full FOMC and Federal Reserve Presidents,” she wrote. “I would not rule out an independent move by the Board of Governors to further stimulate given the unprecedented differences of opinion that many Fed Presidents have with the Chairman about the course of policy going forward.”
In economic data released Friday, real gross domestic product increased at a 1.6% annual rate in the second quarter of 2010, according to the preliminary estimate.
Consumer spending, which accounts for about 70% of real GDP, increased 2.0% for the quarter, revised higher from the 1.6% gain estimated in last month’s GDP report.
Core personal consumption expenditures were unchanged from the advance estimate of a 1.1% increase for the quarter.
Economists estimated GDP would increase 2.4% for the quarter and that core personal consumption would increase 1.1%, according to the median forecast from Thomson Reuters.
The University of Michigan's final August consumer sentiment index reading was 68.9, compared to the preliminary August 69.6 reading.
Economists polled by Thomson Reuters had predicted a 69.6 reading for the index.
Previous Session's Activity
The most actively traded security in the state yesterday was California 4.5s of 2030, which traded 38 times at a high of 99.905 and a low of 96.500.
