NEW YORK – Tax-exempt yields are playing catch-up to Tuesday’s Treasury moves as yields fall across the board.
“Everyone is paying close attention to Europe and that’s the driver,” said a trader in New York. “The secondary underperformed yesterday after the Treasury move and that’s going to continue today.”
The trader added there is enough supply in the muni market today that will keep people unconcerned about supply. “There’s enough to keep any buying pretty much dedicated to the primary, not the secondary.” In primary supply, the trader said there are about 18 deals that are over $100 million that “are taking everyone’s attention.”
Early reads from the Municipal Market Data scale show yields falling across most of the curve. The two-year yield is steady, while yields maturing between 2014 and 2017 are down about two basis points. Credits maturing in 2018 are down between one and three basis points, and 2019 to 2021 maturities are seeing a two to four basis point drop. Yields on credits maturing after 2022 are seeing drops up to three basis points.
On Tuesday, the two-year muni yield closed at 0.45% for its ninth consecutive trading session. The 10-year saw a one basis point drop to 2.42%, and the 30-year yield finished at 3.72%.
In Wednesday morning trading, the Treasury market saw a sell-off across the board. The two-year Treasury yield rose three basis points to 0.29%. The 10-year and 30-year yield rose two basis points each to 2.14% and 3.15%.
The slope of the muni yield curve has steepened during the past week, according to MMD analyst Daniel Berger. The slope reached a high of 162 basis points before the Fed’s Operation Twist was announced, and then dropped to a low of 115 basis points in early October. In the past week, the slope has jumped from 118 basis points to 130 basis points.
In the primary market today, the Port Authority of New York and New Jersey is expected to sell $400 million of revenue bonds in the competitive market. The bonds are rated Aa2 by Moody’s Investors Service and AA-minus by Standard & Poor’s.
In the negotiated market, Wells Fargo is expected to price $559.7 million of Chicago Transit Authority bonds for both retail and institutional investors. The issue will consist of $455.8 million of sales tax receipt revenue bonds and $104 million of new-money and refunding capital-grant receipts revenue bonds.
And while economic news was overshadowed by Europe, durable goods orders and new home sales were released Wednesday.
New orders for durable goods fell $1.5 billion or 0.8% on a seasonally adjusted basis in September. The drop came after new durable goods orders fell a revised 0.1% the previous month. Excluding transportation, orders rose 1.7% in September after falling a revised 0.4% in August. It was the largest gain since March, when orders rose 2.6%.
Sales of new single-family homes rose to a seasonally adjusted annual rate of 313,000, a 5.7% gain above the revised August rate of 296,000, the Commerce Department reported.
