NEW YORK – The tax-exempt market was steady in morning trading after Thursday saw a slight back up in yields, although activity was up in the secondary market.
“It’s a little busy,” a New York trader said. “Munis aren’t up, but it’s just a little more busy.” He added yields are mostly flat from Thursday’s levels.
The Municipal Market Data scale was not updated by press time. On Thursday, the two-year yield finished steady at 0.36% for its ninth consecutive trading session and the 30-year finished flat at 3.37%. The 10-year yield rose one basis point to 2.09%.
Treasuries were slightly stronger. The benchmark 10-year yield and the 30-year yield each fell one basis point to 2.16% and 3.27%. The two-year was steady at 0.34%.
Over the last week, muni-to-Treasury ratios rose as muni underperformed Treasuries and become comparatively cheaper. The five-year muni yield to Treasury yield ratio jumped to 97% on Thursday from 93.6% the week prior. The 30-year ratio increased to 103.1% from 102.7%.
The 10-year ratio was about flat from the week prior, falling slightly to 96.8% on Thursday from 96.9%.
The 10- to 30-year slope jumped over the past week, rising to 128 basis points on Thursday from 123 basis points. The slope is still relatively flat from when it started the year at 169 basis points.
Looking to next week, the tax-exempt market can expect $5.78 billion in bonds, up from this week’s revised $4.34 billion. On the negotiated calendar, $4.06 billion is expected, up from this week’s revised $3.49 billion. In competitive deals, $1.72 billion is expected next week, up from this week’s revised $849.2 million.
In economic news, personal income rose $28.2 billion, or 0.2%, in February after a revised 0.2% gain in January. Income failed to meet the 0.4% increase expected by economists.
Personal spending rose $86 billion, or 0.8%, in February, following a revised 0.4% gain in January. The increase beat the 0.6% increase that economists had projected.
“With February’s stronger-than-expected reading and the upward revisions to January, real PCE is on track to grow by 2.25% to 2.5% in the first quarter and the momentum over the last three months has been stronger at 3%,” wrote economists at RDQ Economics. “This is a faster gain in spending than was embodied in the pessimistic projections for first-quarter growth of around 1.5% that a number of forecasters made a month ago.”
The economists added: “Although real disposable income growth has been soft over the last three months, we expect this to pick up given the recent trends in employment growth. Headline inflation remains modestly above the Fed’s 2% target rate both over the last year and over the latest three months, while core inflation is just about in line with the Fed’s overall inflation target. There is absolutely no case in these data for the Fed to provide further support for the economy in the form of additional QE.”
