NEW YORK – The tax-exempt market followed Treasuries lower Wednesday morning as yields jumped across the curve.
Yields appeared to hit a wall earlier this week after setting record lows and have been rising ever since as buyers choose not to participate with rates so low.
Munis were much weaker Wednesday morning, according to the Municipal Market Data scale. Yields inside four years were steady while yields on the five- and six-year rose as much as three basis points. Outside seven years, yields jumped between two and six basis points.
On Tuesday, the 10-year yield rose one basis point to 1.74% – closing seven basis points above its record low of 1.67% set Jan. 18. The 30-year yield increased two basis points to 3.07%, finish up from the 3.05% record low recorded by MMD on Monday. The two-year yield remained steady at 0.31% for the 20th consecutive trading session.
Treasuries were much weaker. The benchmark 10-year yield and the 30-year yield each rose four basis points to 1.81% and 2.96%, respectively. The two-year was steady at 0.29%.
In the primary market, Mesirow Financial is expected to price $596 million of Chicago general obligation taxable and tax-exempt bonds, rated Aa3 by Moody’s Investors Service, A-plus by Standard & Poor’s, and AA-minus by Fitch Ratings.
Citi is expected to price North Carolina Eastern Power Agency system revenue bonds, rated Baa1 by Moody’s and A-minus by Standard & Poor’s.
Barclays Capital is expected to price $351.4 million of North Texas Tollway Authority system revenue refunding bonds.
In economic news, housing starts rose 2.6% to a seasonally adjusted annual rate of 717,000 in April, up from the revised 699,000 figure in March. Building permits fell 7.0% to a seasonally adjusted annual rate of 715,000 in April from 769,000 in March.
Housing starts came in above the 683,000 figure economists expected. Building permits came in below the 726,000 economists predicted.
“The evidence is growing, in our opinion, that housing construction will advance modestly in 2012,” wrote economists at RDQ Economics. “Although housing starts have, on balance, moved sideways since January, the level of housing starts is still up almost 30% from year-ago levels and building permits have expanded at a rapid rate since the beginning of the year.”
In other economic news, industrial production rose 1.1% in April, while capacity use increased 79.2%. Both figures topped economists’ estimates: a 0.6% increase in production and 79.0% capacity use.
“Industrial activity expanded at a brisk pace in April although we are somewhat skeptical of the month-to-month data given the extent of the reported drop in output in March that was not corroborated by the ISM output data or the hours worked data in manufacturing,” RDQ economists wrote. “The output gain in April comes on top of a 9.8% annualized jump in manufactured production in the first quarter – although because of the drop in output in March, April is only running 3.1% ahead of the first quarter at an annual rate.”