NEW YORK – Buyers continue to devour bonds as the holiday rush sets in as traders look to push cash to work.
“So far we have a couple new issues out,” said a trader in New York, who noted the $156 million North Carolina Garvee deal priced by Bank of America Merrill Lynch is very attractive.
“The Garvee deal is three times over,” he said, “So there is still a lot of appetite out there and a lot of demand. There is a lot of cash chasing very few bonds and it’s becoming difficult from a portfolio manager’s perspective to build a portfolio and construct it from ground up given where levels are. You put in 5 million for a new issue and you get 500.”
He added while it’s difficult given low yields, “we have to plug away and we have a lot of cash to put to work.” At some point, the trader added, the market may take a step back, but until then, “it seems like we are getting a low interest rate environment for the foreseeable future. It will be a slow grind I think.”
This trader added he was surprised to see there are still new issues given the time of the year. “Especially given the prior two weeks have seen so much supply and it’s been absorbed supremely well. Issuers are taking advantage of yields.”
Munis were firming, according to the Municipal Market Data scale.
Yields on the five- to 22-year fell one basis point while yields beyond 23 years fell two basis points.
On Wednesday, the two-year muni yield closed flat at 0.36% for its sixth consecutive trading session. The 10-year yield fell two basis points to 1.94% and the 30-year yield fell four basis points to 3.64%.
Treasuries were weakening slightly. The benchmark 10-year and 30-year yield rose two basis points each to 1.92% and 2.92%, respectively. The two-year yield was flat at 0.25%.
In the primary market, Wells Fargo is expected to conduct its second day of retail and then price for institutions $568.2 million of Puerto Rico Infrastructure Financing Authority revenue bonds. The bonds are rated Baa1 by Moody’s Investors Service and BBB by Standard & Poor’s. On Tuesday, Wells priced $160 million of the deal for retail.
Yields on the Series 2011 B bonds, not subject to the alternative minimum tax, ranged from 2.38% with a 4% coupon in 2014 to 4.86% with a 5% coupon in 2025. Credits maturing in 2026 were not offered for retail. The bonds are callable at par in 2021.
In economic news, initial jobless claims were lower than expected, falling to 366,000 for the week ending Dec. 10, the Labor Department said. It was a 19,000 decrease from the prior week’s revised level of 385,000 and the lowest level since May 31, 2008.
“The latest unemployment claims readings are among the most promising signs in the recovery to date that the labor market may be seeing an uptick in job creation,” wrote analysts at RDQ Economics.
The producer price index rose 0.3% in November following a 0.3% drop in October. The gain was higher than the 0.2% increase expected by economists.
“The Fed will look at this report as more evidence that inflation is moderating,” analysts at RDQ said.
Industrial production decreased 0.2% in November after jumping an unrevised 0.7% in October, the Federal Reserve said. The fall was less than the 0.5% decrease projected by economists.
“Industrial production was weaker than forecasts in November,” wrote analysts at RDQ. “However, there were some modest upward revisions to manufactured output in recent months and the drop in activity in November is out of line with survey information. In short, we do not think that industrial activity weakened in November as this report suggests.”
And in other big economic news, the Philadelphia Fed Index expanded to 10.3 in December, far beating expectations of a reading of 5.0. The increase comes after a reading of 3.6 in November.
