NEW YORK — The United States is getting closer to surpassing its debt ceiling, but the municipal market doesn’t seem quite as concerned as the politicians involved in resolving the issue.
“[The deadline] is getting closer, and there are more fireworks,” said a trader in California. “A lot of this is political posturing. The markets certainly don’t seem to be concerned about it. The markets are more concerned about QE3, 4, 5, etc., as opposed to whether or not the debt ceiling gets resolved in time.”
But while the muni market isn’t reacting to the debt ceiling issue, it isn’t doing very much of anything, traders say, with limited new issuance and moderate activity in the secondary.
“It’s really quiet right now,” the trader said. “There really hasn’t been a lot of velocity in bonds in general. Retail distribution is spotty.”
Traders also largely ignored the second session of Federal Reserve Board Chairman Ben S. Bernanke’s testimony on Capitol Hill. He was grilled by the Senate Banking, Housing, and Urban Affairs committee after presenting the same testimony he offered the House Financial Services Committee Wednesday: that the Fed will act, if necessary, to either tighten or loosen monetary policy.
“When you get new deals in the marketplace and some of these federal issues behind us, we could see business perk up again,” the trader said. “But right now it’s pretty lackluster.”
Muni yields were not updated by press time. They started Thursday steady across the curve, according to the Municipal Market Data scale. The benchmark 10-year muni yield was flat Wednesday at 2.66% for a second session. It rests 32 basis points beneath its average for 2011.
The 30-year yield also remained unchanged for a second day at 4.30%, or 32 basis points under its average for the year. The two-year yield also hovered at 0.40% for a second consecutive day after 20 straight sessions at 0.42%, and another 17 at 0.44%. It stands at its nadir for the year and 20 basis points below its average for 2011.
Treasury yields entered Thursday afternoon weaker. The 10-year yield rose four basis points to 2.92%.
The 30-year also increased four basis points to 4.21%. The two-year yield stepped up one basis point to 0.37%.
Muni traders expressed frustration with the inability of Congress and President Barack Obama to find a solution to the U.S.’s rapidly approaching debt ceiling. The stand-off creates uncertainty, which in turn stifles the market. Moody’s Investors Service, seemingly to give legislators and the president a push, Wednesday placed the U.S. government on review for possible downgrade from its historically ironclad triple-A rating. Standard & Poor’s reportedly has also warned lawmakers that the debt ceiling needs to be raised so no payments are delayed.
