The tax-exempt market extended losses into the third session of the week as traders said left over balances and limited trading pushed munis lower.
“It was a little busy earlier,” a New York trader said. “But it has calmed down since and is trading steady.”
He added that salesmen are working the new issues and the secondary is taking a backseat.
Other traders said the day was mostly quiet, even after a fairly quiet Monday and Tuesday. “It’s quiet across the yield spectrum,” a Chicago trader said. “There is nothing to show direction. Federal Open Market Committee day is usually quiet in the morning.”
So far this week, munis have traded softer in each session as the primary market hasn’t been able to spur much activity. “The market was stable to slightly weaker, but outperformed the Treasury market,” wrote Dan Toboja, vice president at Ziegler Capital Markets. “The new issue balances on some deals continue hanging around, although there were fewer trades at down levels on those new deals.”
In the primary market Wednesday, Goldman, Sachs & Co. priced for retail $237.5 million of Bay Area Water Supply and Conservation Agency tax-exempt revenue bonds for the Capital Cost Recovery Prepayment Program. Institutional pricing and the taxable series is expected to price Thursday. The bonds are rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s.
Yields ranged from 0.32% with a 1% coupon in 2014 to 3.10% with a 4% coupon in 2034. The bonds are callable at par in 2023. Credits maturing between 2025 and 2027 and between 2029 and 2033 were not offered for retail.
In the competitive market, Citi won the bid for $325.6 million of triple-A North Carolina general obligation refunding bonds. Yields ranged from 0.17% with a 3% coupon in 2013 to 2.03% with a 5% coupon in 2025.
North Carolina State Treasurer Jane Cowell said the refunding bonds saved $45 million in debt service costs. “One of the responsibilities I have as State Treasurer is to identify these types of refinancing opportunities. The current market allowed us to take advantage of low financing costs to save money for North Carolina taxpayers. The savings generated by the sale of these bonds helps us reduce our debt service costs and reinforces our AAA bond rating.”
In the secondary market, trades compiled by data provider Markit showed weakening.
Yields on Brazoria County, Texas, 5s of 2021 jumped five basis points to 1.84%. Yields on California’s Golden State Tobacco Securitization Corp. 5.75s of 2047 and Beverly Hills, Calif., Unified School District 0s of 2028 rose four basis points each to 6.12% and 3.54%, respectively.
Yields on University of Hawaii 4.5s of 2032 and Detroit Water Supply System 5.25s of 2041 rose three basis points each to 2.15% and 4.12%, respectively.
Municipal bond market reads showed a softer market.
The Municipal Market Data scale ended lower for the fifth consecutive session. The 10-year yield jumped two basis points to 1.82% while the 30-year yield spiked up three basis points to 2.87%. The two-year finished steady at 0.34% for the third session.
The Municipal Market Advisors 5% coupon triple-A benchmark scale also showed softer trades. The 10-year yield and the 30-year yield rose two basis points each to 1.84% and 2.94%, respectively. The two-year held steady at 0.35% for the third session.
The Treasury yield curve steepened Wednesday. The two-year yield fell two basis points to 0.27% while the 30-year yield jumped two basis points to 3.19%. The benchmark 10-year was steady at 2.00%.
In economic news, the Fed said it plans to continue buying $45 billion a month of Treasuries and $40 billion a month of mortgage-backed securities. The FOMC also decided to keep the target rate for the federal funds rate at zero to 0.25% and reiterated its stance that rates will continue to stay low as long as unemployment remains above 6.5% and inflation is projected to stay under 2.5%.
“With today’s policy statement, the Fed appears to have downgraded its assessment of the economy saying 'growth in economic activity paused in recent months’,” wrote economists at RDQ Economics. “The paragraph on forward guidance was largely unchanged.”
The economists continued, “The Fed’s statement that economic activity has 'paused’ suggests policymakers are putting greater weight on the small contraction in real GDP in the fourth quarter, though the Fed did cite weather and other transitory factors.”
“There were no surprises in the policy guidance and few other changes to the statement, though the Fed did note that 'strains in global financial markets have eased.’ We share Kansas City Fed President George’s concerns about the risks to financial stability and eventually price stability from the highly accommodative stance of policy, which will get even more accommodative in the coming months. We also believe the Fed is further complicating its return to a more normal policy setting and that additional asset purchases will do little to boost economic growth.”
Other economists weighed in, saying the accomodative stance should remain for the next year. “Expectations were for precious little change from the FOMC at this meeting, and those expectations were indeed met,” said Robert Kavcic, senior economist at BMO. “We continue to expect QE3 to wrap up before year end as the labour market outlook improves, and the fed funds rate to remain unchanged through 2014.”