Municipal bonds sold off slightly following release of the Federal Reserve Open Market Committee's minutes, which said continued stimulus won't cause excessive inflation, and showed the Fed discussed tools it would use for "eventual normalization," stressing it wouldn't happen soon.
Yields for bonds maturing in six to 20 years rose up to two basis point, and increased from one to three basis points for bonds maturing in 21 to 30 years, according to Municipal Market Data's triple-A scale. While the market is selling off slightly, market participants predicted before the release that the minutes would not have a huge impact on munis.
"In our view, the Fed is likely to maintain its steady removal of accommodation and end quantitative easing (QE) near the end of the third quarter," U.S. Bank Wealth Management wrote in a report released on Wednesday. "Over the next three to four quarters, we also expect increased interest rate volatility as the Fed exits extraordinary easing measures and shifts towards a more traditional monetary policy stance."
Yields have been rising in the intermediate-and long-ends of the curve for three straight days, according to MMD. A trader in New York said this move is not that notable. "There's been quite a rally, I think things are starting to take a breath," the trader said. "The market is drifting until the next meaningful market message we can read."
Even though there has been a small sell-off this week, yields have declined from their levels at the beginning of the month.
Yields for two-year maturities have fallen by four basis points to 0.34% from the beginning of the month to market close Tuesday, according to Municipal Market Advisors. They have declined by 13 basis points to 2.19% on the 10-year, and by 16 basis points to 3.45% on the 30-year.
The trader in New York said that people were mostly looking at the minutes as an indicator for the Fed's level of support for Treasuries and the economy going forward.
"The minutes will probably go along with people's expectations, but people are just curious to see if they are bringing up or debating how soon they expect to be adjusting short-term rates," he said.
During the last FOMC meeting announcement on April 30 the Fed said that its Fed funds target rate would remain between zero and 0.25%, and that its taper would remain on schedule. The Fed did announce that the economy is improving, especially since severe weather conditions that it believes impacted economic data earlier in the year have abated.
Federal Reserve Chairwoman Janet Yellen has stated that the Fed is not looking to raise interest rates until housing data is stronger and the inflation rate has improved.
Raymond James priced $190.145 million Dallas and Fort Worth, Texas, airport joint revenue improvement bonds. Yields on the bonds ranged from 2.44% with a 5% coupon in 2021 to 4.5% at par in 2024. The deal is rated A-plus by Standard & Poor's and A by Fitch Ratings. The bonds can be called at par in 2022.
Piper Jaffray will issue $117.3 million of Salina Unified School District 305, Kan., GO refunding and improvement bonds. The deal is not rated.
Bank of America Merrill Lynch repriced $100 million of pollution control revenue refunding bonds for the city of Rockport, Ind. The deal has a 1.75% coupon in 2025 and is not rated.
Raymond James will bring $100 million of California Contra Costa Water District refunding bonds. The deal received a AA-plus rating from S&P and a AA from Fitch.
In the competitive market, Raymond James won the bid for $200 million of Massachusetts GOs. Yields ranged from 0.20% with 1% coupon in 2015 to 3.05% at par in 2024. There is no optional call. The deal is rated Aa1 by Moody's and an AA-plus by both S&P and Fitch.
Wells Fargo won the bid for a two-part deal totaling $133.5 million of Kansas Development Finance Authority of revenue bonds. Yields for $114.9 million of Kansas State University housing projects bonds ranged from 0.30% with a 5% coupon in 2015 to 4.10% with a 4% coupon in 2044.
Yields for $18.6 million of Kansas State University College of Engineering project bonds ranged from 0.30% with a 5% coupon in 2015 to 3.45% with a 3.25% coupon in 2029. The deal is callable at par in 2022 and is rated Aa2 by Moody's and AA-minus by S&P.
Bank of America Merrill Lynch won $116.5 million of Texas' Frisco Independent School District unlimited tax school building and refunding bonds. Yields ranged from 0.30% with a 2% coupon in 2015 to 3.71% with a 4% coupon in 2044. The deal is callable at par in 2024 and is rated triple-A by Moody's and S&P.
Treasuries weakened Wednesday afternoon, with 30-year yields climbing three basis points to 3.41% and the 10-year benchmark jumping two basis points to 2.54%. The two-year notes rose one basis point to 0.35%.
