Fed up with low yields and too much inventory, the tax-exempt market went on a selling spree Tuesday morning as bonds were cheapened across the curve.

"The market is looking at a five basis point cut right now," said Dan Toboja, vice president at Ziegler Capital Markets. "This market just got weaker. I think everyone woke up this morning and said I'm too heavy. Time to sell. There are some decent size blocks coming for sale."

He added in Monday's trading session the market gave signs of weakness for the first time in several weeks. "Bids were off and new issue balances from last week remained on several deals. The large supply of general market paper this week will be a test for the market."

In the primary market Tuesday, Citi is expected to price $1.2 billion of Iowa Finance Authority Midwestern disaster area revenue bonds for the Iowa Fertilizer Company project, rated A-1-plus by Standard & Poor's.

Citi is expected to price for institutions $850 million of New York City general obligation bonds, following a two-day retail order period. The bonds are rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.

RBC Capital Markets is expected to price for institutions $625 million of Connecticut special tax obligation bonds for transportation and infrastructure purposes, following a retail order period Monday. The bonds are rated Aa3 by Moody's and AA by Standard & Poor's and Fitch.

In the competitive market, the Virginia Housing Development Authority is expected to auction $560 million of revenue bonds.

Triple-A-rated Georgia is expected to auction $290.6 million of general obligation bonds.

On Monday, the Municipal Market Data scale ended as much as two basis points weaker. The 10-year yield and the 30-year yield rose two basis points each to 1.50% and 2.50%, respectively. The 10- and 30-year yields are three basis points above their record lows of 1.47% and 2.47%, respectively. The two-year finished flat at 0.30% for the 51st consecutive trading session.

Treasuries were weaker Tuesday morning. The benchmark 10-year yield and the 30-year yield increased three basis points each to 1.65% and 2.84%, respectively. The two-year was steady at 0.25%.

In economic news, the U.S. international trade deficit was $42.2 billion in October, up 4.9% from $40.3 billion in September. The October deficit was slightly smaller than the $42.5 billion estimated by economists and resulted by $180.5 billion in exports and $222.8 billion in imports.

"The volatility in the trade data makes it very difficult to interpret this report," wrote economists at RDQ Economics. "From a green-eye-shade perspective of GDP accounting, the October trade data tentatively point to an addition to GDP growth from trade of between a quarter and a half percentage point. However, given the magnitudes of the declines in both imports and exports in October, it is hard to imagine that these data will be representative of the quarter as a whole, so this GDP insight is probably of limited value."

They added, "Indeed, if the trade flows over the last three months are to be taken as legitimate economic indicators, they point to contracting global trade flows since both constant dollar import and export totals have fallen at a double-digit rate over the last three months with the decline in imports the greater of the two. If global trade is contracting, this is a negative growth signal. Moreover, it is unlikely that clarity will be provided with the November trade data since the disruption to the New York and New Jersey ports at the beginning of the month from Sandy and the effects of the strike at the ports of Long Beach and Los Angeles at the end of the month are likely to add to the volatility and the difficulty of interpreting underlying trade flows."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.