NEW YORK — The municipal market next week is expecting to face the heaviest load of new bonds the market has seen this year.
And it will do so with the backdrop of a debt-ceiling crisis that continues to hurtle toward its fateful deadline, hammering the bond markets with its attendant uncertainty and volatility.
Muni new issuance next week is expected to total $8.27 billion versus a revised $5.71 billion this week. But industry participants aren’t worried about the market’s ability to absorb it all, a trader in California said.
“At the right pricing, it can,” he said, in regard to the coming issuance, “because there’s still reinvestment money there sitting on the sidelines waiting to be reinvested.”
Munis were mostly weaker in early trading, but the market is still weighing several points of economic data, which could turn the tide in its favor. Still, trading in the secondary market has been fairly quiet, the trader added.
“There’s not a whole lot happening,” he said. “We’re probably giving up one or two basis points [in yields].”
An early read from Municipal Market Data scale showed high-grade yields maturing between 2017 and 2041 were flat to two basis points higher. The front of the curve remained steady.
In Thursday’s market, the benchmark 10-year muni yield was flat at 2.66%, 32 basis points beneath its average for 2011, while the 30-year yield was steady at 4.30%, also 32 basis points under its 2011 average.
The two-year yield maintained a 0.40% yield for a third consecutive day.
Treasury yields crossed into the afternoon mixed. The 10-year yield dropped three basis points to 2.93%.
The two-year yield was unchanged at 0.38%. But the 30-year yield inched up a basis point to 4.27%.
Politicians in Washington are still butting heads over how to address the nation’s nearing its debt ceiling. The ratings agencies have tried to provide some impetus to move the process along. For its part, Standard & Poor’s wrote late Thursday that there is more than a 50% chance the U.S. rating will get downgraded in the coming 90 days.
Bond markets have been wrestling with the effects of this and economic numbers that have been released recently.
In economic news, the Labor Department reported Friday that consumer prices fell 0.2% in June on a seasonally adjusted basis, after a revised 0.2% rise in May.
Core consumer prices, excluding food and energy were up 0.3% in June following a revised 0.3% increase in May. Economists polled by Thomson Reuters had a median estimate of a 0.1% drop for prices overall and a 0.2% gain for the core CPI.
Also, the University of Michigan’s consumer sentiment survey plunged 7.7 to 63.8, its lowest level in 16 months. That compared with the final June 71.5, the preliminary June 71.8, and the final May 74.3 reading, according to market sources.
Economists polled by Thomson Reuters had predicted a 72.5 reading for the index.
