NEW YORK — Municipal bond yields continue to follow Treasuries Tuesday. As Treasury yields rise across the curve, tax-exempt yields are following, albeit less dramatically.
“It feels a little weaker here this morning,” a trader in New York said. “There’s a fair amount of bid-wanteds out there.”
A decent amount of new issuance is also expected to reach the market Tuesday. Minnesota’s large competitive general obligation offering will lead the way.
“That should tell you where the market is,” the trader said. “But they scrapped the refunding on that. I’m not sure why; it could have been negative arbitrage, but who knows.”
The state of Minnesota on Tuesday cancelled two of the five series in its $922 million competitive GO offering. The two cancelled refunding series total slightly more than $150 million. The other three series in the offering are expected to come to market throughout the morning.
The market expects a slight decrease in new supply for this week, after a substantial increase in issuance last week. This week, the market expects an estimated $6.83 billion in new supply. Last week saw a revised $7.86 billion of volume.
The Arizona Department of Transportation is also expected to issue $164.5 million of revenue bonds in the competitive market today.
Tax-exempt yields appear primed for another session of weakening. The Municipal Market Data scale did not have a read on yields at the front end of the curve at press time. Yields beyond 2016 are two to four basis points higher.
The 10-year muni yield jumped five basis points on Monday to 2.02%. It had been at a record low of 1.97% for the two previous sessions.
The 30-year yield climbed three basis points on the day to 3.44%, up from its all-time low. The two-year yield remained at 0.32% for an eighth straight session.
Treasury yields started Tuesday’s session weaker across the curve. The rate increases follow incredible rallying at the intermediate and longer parts of the curve last week, and so are rising from otherwise extreme lows.
The benchmark 10-year Treasury yield leaped eight basis points to 1.98%. The two-year yield increased one basis point to 0.25%.
The 30-year yield, which plunged as much as 53 basis points last week, jumped nine basis points to 3.09%, after climbing 10 basis points during Monday’s session.
The equities markets have seen a strong start to the day. All major indexes are up from Monday’s close by at least 1.66%. The Dow Jones Industrial Average is up so far 208 points.
In economic news, the Conference Board reported Tuesday that the consumer confidence index ticked up to 45.4 in September. It rose from an upwardly revised 45.2 last month; the August index initially measured 44.5.
The reading failed to meet economists’ predictions. Those polled by Thomson Reuters estimated the index would be 46.0.
