The tax-exempt market continued to strengthen Tuesday morning, continuing a 16-consecutive trading session streak of steady to firmer munis.
Since June 22, munis have traded flat or stronger as demand outweighs supply and economic woes have buoyed fixed income markets.
Munis were steady to firmer Tuesday morning, according to the Municipal Market Data scale. Yields inside 12 years were steady while the 13- to 17-year yields fell one basis point. Outside 18 years, yields were steady.
On Monday, the two-year yield fell one basis point to 0.31%, breaking a 30-session streak of trading at 0.32%. The 10-year yield dropped one basis point to 1.73%, hovering only six basis points above its record low of 1.67% set Jan. 18. The 30-year yield plunged four basis points to a new record low of 2.92%, beating the previous record low of 2.96% set on last Thursday.
Since the beginning of the month, the 10-year yield has dropped 12 basis points while the 30-year yield has plunged 24 basis points.
Treasuries were weaker after a rally Monday. The two-year and the benchmark 10-year yields each raised two basis points to 0.25% and 1.49%, respectively. The 30-year yield rose increased one basis point to 2.57%.
On the competitive calendar, the Dormitory Authority of the State of New York is expected to auction $1.1 billion of triple-A rated revenue bonds, in what is expected to be one of the largest deals of the week.
Elsewhere in the primary market, Citi is expected to price $125 million of Virginia Transportation Board federal highway grant anticipation revenue bonds, rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s.
In economic news, the June consumer price index was flat, coming in only a little better than expected, while the core index rose 0.2%.
“In the last four months, core inflation trends have been very stable with prices rising at 0.2% per month,” wrote economists at RDQ Economics. “Lower energy prices, which fell 1.4% in June, held the CPI index unchanged and the year-over-year inflation rate stable at 1.7%. We believe that fears of deflation are misplaced and that after a slight further dip, year-over-year inflation rates will grind higher in the fall. Nonetheless, if the Fed wanted to initiate a new round of asset purchases in September, the FOMC would likely be able to point to below target inflation.”
In other economic news, industrial production rose 0.4% in June, slightly beating economist expectations of a 0.3% rise. Capacity increased slightly to 78.9%, falling short of the 79.2% expected by economists.
“Manufactured output growth was fairly strong in June as the saw-tooth pattern of output growth continued with a capital equipment-led gain of 0.7%,” wrote RDQ economists. “Utilities production held back the overall gain in industrial production and for the quarter as a whole, industrial production rose at an annualized growth rate of 2.2% versus 5.8% in the first quarter. Historically, 2.2% growth in industrial production would be consistent with about 2.4% real GDP growth but our forecast for a second-quarter growth rate of 1.6% for GDP lies well within one standard deviation of this relationship. This report and yesterday’s Empire State survey suggest that manufacturing activity continues to expand and they stand in contrast to the weak ISM report for June.”