The tax-exempt market extended losses into Tuesday morning as yields continued to rise across the curve.
Traders said there were more bids out in the morning, providing more selling pressure. "The market is still off five basis points," a New York trader said. "Customers are showing bids. Levels are adjusted but in fact there are still bids. This selloff is going to continue as long as the bid-wanteds keep up."
"The market has been tumultuous over the last week," said Dan Toboja, vice president at Ziegler Capital Markets. "What seemed like a simple price correction beginning last week has continued into a full selloff. Yields have risen 25 basis points for many general market bonds. And bids for product have thinned out significantly."
He added munis are collapsing due to reports that munis may lose a portion of their tax exempt status as part of the fiscal cliff negotiations. Still, he added there is no guarantee munis will be a part of negotiations and existing bonds will increase in value if they are grandfathered in. Next year is expected to have negative net supply and fund flows have remained positive.
"So while we do think the current market selloff remains a good reminder to participants of the fragility of muni liquidity, the current selloff may begin to slow especially as 10-year muni ratios near 100% again," Toboja said. "With very little supply coming before year end all attention will be focused on the D.C. rumor mill."
In the primary market Tuesday, JPMorgan is expected price $300 million of Bon Secours Health System Obligated Group composite issue revenue bonds. The bonds are rated A3 by Moody's Investors Service and A-minus by Standard & Poor's and Fitch Ratings.
The revenue bonds should be broken down into $185 million for the South Carolina Jobs Economic Development Authority; $55 million for Henrico County, Va., Economic Development Authority; $40 million for Russell, Ky.; and $20 million for Norfolk, Va., Economic Development Authority.
Piper Jaffray is expected to price $149 million of North Orange County, Calif., Community College District taxable bonds, rated Aa1 by Moody's and AA by Standard & Poor's.
On Monday, yields on the Municipal Market Data scale continued to climb. The 10-year yield and the 30-year yield jumped eight basis points each to 1.74% and 2.79%, respectively. The two-year finished steady at 0.30% for the 56th consecutive trading session.
Treasuries weakened slightly Tuesday morning. The two-year yield and the 30-year yield rose one basis point each to 0.27% and 2.95%, respectively. The benchmark 10-year yield was steady at 1.78%.