NEW YORK – Tax-exempt yields rose across the curve, following Treasuries, as the EU resolution provided the confidence that allowed investors to move into more risky assets.
“There is a little bit of softening as people trying to get some trades done, but we are still obviously having a supply issue,” said a trader in New York. “There are more offerings than there have been in the past few weeks, and people are cutting the offerings, which is helping.”
Still, “it’s pretty quiet this morning,” the trader said. “There are a few offerings around but nothing major.”
Muni yields were up in Thursday morning trading, according to the Municipal Market Data scale. Yields were steady in the short end of the curve, saw a one basis point increase in credits maturing in 2017, and saw an increase of up to two basis points on debt maturing between 2018 and 2029. Yields on maturities after 2030 rose up to three basis points.
On Wednesday, the two-year muni yield closed at 0.45% for the tenth consecutive trading session. The 30-year was also unchanged at 3.72%. The 10-year saw a three basis point drop to close at 2.39%.
Thursday morning, the Treasury sell-off continued from Wednesday. The benchmark 10-year yield saw the biggest spike, jumping 11 basis points to 2.30%. The two-year yield rose one basis points to 0.31%, while the 30-year yield rose nine basis points to 3.32%.
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. Last Monday, the slope jumped to 130 basis points from 118 basis points in one week. As of Wednesday night, the slope steepened to 133 basis points.
In the primary market Thursday, the competitive calendar looks slim, with the biggest deal a $37.39 million Leon County-Tallahassee Intergovernmental Agency revenue bond deal. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard and Poor’s.
On the negotiated calendar, Barclays Capital is expected to price $600 million of dedicated sales tax bonds for the Massachusetts School Building Authority.
Today’s economic news will again be dominated by Europe, as leaders came to an agreement with private banks to take a 50% haircut on Greek debt.
“As long as an immediate Greek default is not an issue and the EU is working on supporting Italy and Spain, the markets will feel that this is good enough to put risk back on with the potential that the rally will last until year-end,” said MMD analyst Daniel Berger in a morning research note.
And positive U.S. news will help the risk-on trade. Real gross domestic product expanded 2.5% in the third quarter, as expected, up from a 1.3% increase in the second quarter, according to the Commerce Department. This is the biggest expansion since the third quarter of last year.
Personal consumption expenditures increased 2.4%, the highest since the third quarter 2006, and a big jump from the 0.7% gain reported for the second quarter.
U.S. state unemployment benefits claims fell 2,000 to 402,000 for the week of Oct. 22, slightly below expectations.
