The municipal market was apathetic about Federal Reserve Board Chair Janet Yellen's testimony before the Congressional Joint Economic Committee that extremely low interest rates remain warranted and gross domestic product will strengthen this year.
"[W]e anticipate that even after employment and inflation are near mandate-consistent levels, economic and financial conditions may, for some time, warrant keeping the target federal funds rate below levels that the Committee views as normal in the longer run," Yellen said in text released by the Fed.
She also, in questioning, refused to be pinned down about the first interest rate hike.
Yields across the curve held steady Wednesday afternoon.
"Munis, in general, are not reacting to Yellen's speech," a trader in Florida said. "Munis are more muted and are responding to low supply, rich ratios and low absolute yields. It's a balance of all three of those things; nothing to do with the speech."
Yellen anticipates an increase in GDP this year, along with an advance toward 2%inflation.
"A faster rate of economic growth this year should be supported by reduced restraint from changes in fiscal policy, gains in household net worth from increases in home prices and equity values, a firming in foreign economic growth, and further improvements in household and business confidence as the economy continues to strengthen," Yellen said.
Market participants were not surprised by Yellen's words. "There wasn't anything new that was said, but hearing it again helps," a West Coast trader said. "Munis keep going up in price, because of low supply and there being plenty of cash out there to buy them. There's not much going on in the secondary. There's a good Treasury auction going on in the 10-year. Prices are going up."
Treasuries strengthened Wednesday afternoon, with the 10-year benchmark falling two basis points to 2.59% and the two-year note slipping three basis points 0.41%. The 30-year was unchanged from Tuesday's market close at 3.40%.
Citigroup Global Markets was expected to bring $450 million of toll highway senior revenue bonds for the Illinois State Toll Highway Authority Wednesday, the largest negotiated deal of the week. The bonds will mature serially from 2025 to 2034 with a term bond in 2039. The deal is rated Aa3 by Moody's Investors Service and AA-minus by both Standard and Poor's and Fitch Ratings.
Harris County Flood Control District is scheduled to issue $195 million district improvement refunding bonds in a three-part issuance. The $50 million part of the issuance is tax-exempt, and the two other portions $70 million and $75 million are taxable. Jefferies is the managing underwriter and the bonds received triple-Aaa ratings from both Moody's and S&P.
Bank of America Merrill Lynch priced and repriced a two-part deal totaling $195 million New Jersey Higher Education Student Assistance Authority student loan revenue bonds. Both the senior subordinate parts of the deal are subject to the alternative minimum tax. The deal is rated Aa2 by Moody's and AA by S&P.
There are no deals over $100 million slated for the competitive market Wednesday.
