The tax-exempt market was steady to slightly stronger Tuesday despite Treasuries weakening on Federal Reserve Chairman Ben Bernanke’s semi-annual monetary policy report to Congress.
The Dormitory Authority of the State of New York deal priced in the primary set the tone for the day. “That deal is going well,” a New York trader said. “I don’t think the market is much stronger but that deal is going well.”
JPMorgan won the bid for $1.1 billion of triple-A rated DASNY revenue bonds, in what is expected to be one of the largest deals of the week. Pricing details were not yet available.
Elsewhere in the primary market, Citi priced $125 million of Virginia Transportation Board federal highway grant anticipation revenue bonds, rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s. Prices were not available by press time.
As pricing of the week’s new deals got off to a start, munis were steady to firmer Tuesday afternoon, according to the Municipal Market Data scale. Yields inside 12 years were steady while yields outside 13 years fell one basis point.
On Monday, the two-year yield fell one basis point to 0.31%, breaking a 30-session streak of trading at 0.32%. The 10-year yield dropped one basis point to 1.73%, hovering only six basis points above its record low of 1.67% set Jan. 18. The 30-year yield plunged four basis points to a new record low of 2.92%, beating the previous record low of 2.96% set on last Thursday.
Since June 22, munis have traded steady or firmer, holding a 16-consecutive session streak of steady to lower yields. Over that time, the 10-year yield has dropped 13 basis points while the 30-year yield has plunged 24 basis points.
Treasuries were weaker after the Bernanke’s testimony. The benchmark 10-year yield and the 30-year yield each jumped three basis points to 1.50% and 2.59%, respectively. The two-year yield increased two basis points to 0.25%. Still, yields remained near their record lows.
In late morning trading, fixed income participants turned their attention to Bernanke’s comments, although most analysts agreed reaction was muted.
“Bernanke stressed that the Fed stands ready to take further action to support the recovery should it falter,” wrote Paul Edelstein, director of financial economics at IHS Global Insight. “But this has been his stance for quite a while. So there was nothing new in him saying so this time.”
Edelstein noted Bernanke’s comments on the economy were gloomier than previous testimonies, but are still too optimistic. “We believe that, despite the recent downgrade to the Fed’s outlook, it remains too optimistic on growth prospects, job creation, and inflation stability. As such, we expect the Fed to downgrade its forecasts again and initiate another round of quantitative easing by the end of the year.”