NEW YORK – The tax-exempt market seemed to hit a wall Tuesday morning after yields on the long end fell to record lows Monday. Yields on the long end crept higher in morning trading as European fears hit the back burner.
The muni yield curve steepened Tuesday morning as yields on the short end fell and yields on the long end rose, according to the Municipal Market Data scale. Yields inside two years were steady while the three- and four-year yield fell one basis point. The six- to 17-year yields were steady while yields outside 18 years rose one basis point.
On Monday, the 10-year yield fell two basis points to 1.73% – just six basis points above its record low of 1.67% set Jan. 18. The 30-year yield dropped three basis points to 3.05% – setting a record low as recorded by MMD. It beat the previous record low of 3.08% set Wednesday. The two-year yield remained steady at 0.31% for the 19th consecutive trading session.
Treasuries were mostly flat. The benchmark 10-year yield and the 30-year yield were steady at 1.79% and 2.95%. The two-year yield rose one basis point to 0.28%.
In the primary market, Morgan Stanley is expected to price for institutions $497.5 million of New York State Environmental Facilities Corp. state clean water and drinking water bonds for the New York City Municipal Water Finance Authority, following a retail order period Monday. The bonds are rated AAA by Standard & Poor’s.
Citi is expected to price for retail $435 million of North Carolina Eastern Power Agency system revenue bonds, rated Baa1 by Moody’s Investors Service and A-minus by Standard & Poor’s.
In competitive deals, Seattle, Wash., is expected to auction $246.5 million of revenue bonds.
In economic news, consumer prices were unchanged in April after rising 0.3% in March. Core consumer prices, which exclude food and energy, increased 0.2% in April after rising 0.2% the month before.
The flat reading of consumer prices missed the 0.1% increase estimated by economists. The 0.2% increase in core prices was on par with what economists had predicted.
“While lower energy prices resulted in an unchanged CPI in April and, consequently, a slower year-over-year inflation rate, the core inflation story showed no improvement,” wrote economists at RDQ Economics. “Our view is that the decline in headline inflation rates will be temporary but we do not expect any material slowing in core inflation trends. Overall PCE inflation will likely fall below the Fed’s 2% target in April but we expect this will be temporary and we do not see these price developments as giving the Fed cover to push through QE3 next month.”
In other economic news, retail sales rose 0.1% to $408.0 billion in April after climbing 0.7% in March. The gain was less than the 0.2% predicted by economists.
“It is important to look through the month-to-month volatility in retail sales to judge the underlying trend in spending and if we do that most aggregates show faster spending growth over the last three months than over the last year,” RDQ economists wrote. “We estimate that real PCE growth in April will be reported at around 0.2% month-to-month, which with a slight upward revision to March implied by this report puts spending growth at the beginning of the quarter at around 2.75% versus the first quarter on an annualized basis.”
