Municipal market yields held steady after a month long sell-off week as the market waits for the Federal Open Market Committee meeting announcement on Wednesday.
Investors predict the market might sell-off a bit after the FOMC announcement comes out, since the market has not been strengthening despite tensions in Iraq.
"Muni market taken cue from Treasuries to be nervous about tomorrow's fed meeting," a trader in Chicago said Tuesday.
The market has been following Treasuries recently selling off most of June, especially on the long-end. Muni yields on the 10-year have risen by 13 basis points to 2.32% this month, according to Municipal Market Advisors' data. The 30-year's yields have risen by nine basis points to 3.54%, and the two-year has held steady at 0.18%.
"Any good economic data that comes from the Fed will cause a sell-off," a trader in New York said. "Even a neutral policy, too."
Yields fell and then steadied last week after the Islamic State of Iraq and Syria (ISIS) captured two major Iraqi cities including Mosul, Iraq's second largest city.
A trader in Chicago said the 10- and 30-year bonds benefitted from the Iraq situation as their yields fell from investors purchasing safe haven bonds. Investors typically buy U.S. fixed income when there are global economic troubles.
The ISIS then posted graphic videos of ISIS members murdering Iraqi soldiers, and a video was released showing Sunni militants interrogating Iraqi Special Forces soldiers and then shooting the soldiers in the back of their heads.
While yields did fall Monday morning according to Municipal Market Data's triple-A scale, they have held steady the rest of the week according to MMA. Traders said this is because positive economic data has been released.
"The good economic data on Monday brought back the morning rally," a trader in Virginia said. "I think the rally was attributable to Middle East concerns and the good economic data canceled it out."
A trader in Connecticut said that while low interest rates are good for issuers, they have been low for so long now there are not that many benefits.
"It just seems like, all I know is, talking to underwriters they say 'rates are favorable now, do a deal,'" he said. "That was last year and the year before. While rates may bounce up a little, bounce back down, still stay relatively low. I'm reluctant to advise a client to do a deal now just because people are saying rates might go higher."
Jefferies held a retail order period for $500 million of Metropolitan Transportation Authority revenue bonds on Wednesday. Yields ranged from 0.50% with a 4% coupon in 2016 to 3.96% with a 5% coupon in 2044. There is a sealed bid on bonds maturing in 2014 and 2015 and a term bond in both 2039 and 2044. The bonds are callable at par in 2024. The deal is rated A2 by Moody's, A-plus by S&P and A by Fitch.
