Muni bond yields dipped late Wednesday following a Federal Open Market Committee meeting in which members said a low policy rate will remain appropriate following the end of the Fed's tapering policy.
Earlier in the day, insured municipal bonds got a boost when Detroit bankruptcy mediators settled with three bond insurers.
Yields on munis maturing from eight to 10 years out fell by three basis points, according to data from Municipal Market Advisors. Short-term bonds were unchanged, while those maturing from 2019 to 2027 fell by two basis points, according to Municipal Market Data.
Detroit bonds backed by bond insurers strengthened Wednesday afternoon following a settlement between insurers and mediators in the city's Chapter 9 bankruptcy.
Bondholders of unlimited-tax general obligation bonds will get around 74% of their $388 million claim, bankruptcy mediators said in an announcement. The decision comes after months of negotiations with three insurers, which are set to pay debt service on the bonds.
Insured Detroit bonds firmed in the
afternoon, with Ambac-backed Detroit GOs with a 5.25% coupon maturing in 2023 firming to 7.82%, the lowest yield since June 2013. Taxable bonds also insured by Ambac traded at 8.31%, compared with 9.15% a week ago, according to Bloomberg data.
"We view [the settlement] as a significantly positive outcome for the bond insurers," Mark Palmer, an equity analyst at BTIG, said in a report.
"While the economics of the deal were more favorable to the bond insurers than many had expected, more important in our view was the removal of the possibility that U.S. Bankruptcy Judge Steven Rhodes would hand down a precedent-setting ruling that UTGO bonds could be treated as unsecured creditors," Palmer wrote.
FGIC-insured Detroit sewer revenue bonds with a 5.25% coupon in 2029 traded Wednesday with a yield of 4%, the lowest since October 2013.
Michigan bonds were a top-10 most traded region in the municipal market, according to Municipal Securities Rulemaking Board data.
Intermediate and long-term municipal bonds' three-day rally hit a wall Wednesday as the market prepared for release of the FOMC minutes from its most recent meeting.
"The market is mainly waiting for the Fed minutes release," a trader in Virginia said. "Treasuries are weakening and I think munis are reacting to that."
From market close Thursday through Tuesday yields for 10-year bonds fell seven basis points to 2.48%, and the 30-year slid by nine basis points to 3.90%, according to MMA data.
Yields fell one basis point on the 10-year and two on the 30-year Tuesday.
Yields reacted to the employment situation report, which showed the March unemployment rate remained at 6.7%, and that while nonfarm payrolls had improved slightly from February, they were lower than analysts had predicted.
"Last week the market was focused on economic data, especially Friday's numbers," a trader in North Carolina said. "From that perspective the numbers certainly did not hurt the market."
The report eased market participant's concern that the Fed would raise interest rates earlier than expected.
Investors' anxiety about an interest-rate hike began on March 19 when Federal Reserve chairwoman Janet Yellen said in a press conference that the Fed might start raising interest rates six months after the end of Quantitative Easing 3, which the market interpreted as in April 2015 — sooner than analysts had predicted.
Immediately after the press conference the short-end of the curve began selling off.
"The market reacted quickly to an off-the-cuff comment," the trader in Virginia said.
The market was steadied after Yellen gave a speech in Chicago on March 31 saying that the Fed was not looking to raise interest rates anytime in the near future.
"I think it's a bit uncertain when the Fed will decide to raise interest rates," the Virginia trader said. "I feel like we've gotten mixed signals from the Fed recently. We got sort of a surprise from Yellen's press conference and I don't want to say 'back-tracked,' but afterwards she softened her language."
Investors still expressed concern about Friday's employment situation report though, because Yellen also said the Fed would base its decision to raise interest rates on economic data.
"The Fed minutes will offer insight to what Yellen and the Fed are thinking," the Virginia trader i added.
Barclays Capital Inc. brought $88.5 million of general obligation refunding and improvement bonds to the market Wednesday for El Paso, Texas. The deal was originally expected at $100.4 million.
Yields ranged from 0.25% with a 4% coupon in 2016 to 4.10% with a 4% coupon in 2039.
The 2015 maturity is selling by sealed bid.
The bonds are callable at par in 2024 and received a AA rating from Standard and Poor's and Fitch Ratings.
Treasury yields fell, with the two-year note dropping four basis points to 0.37%. The 10-year fell two basis points to 2.70%, while the 30-year slid one basis point to 3.57%.
