Market Post: Munis Extend Gains on Fed Euphoria

The municipal bond market extended its Federal Reserve rally Thursday morning after yields fell almost double digits Wednesday following an announcement by the Fed it would not change its $85 billion-a-month asset purchases.

Immediately after the announcement, the 10-year Treasury yield rallied 17 basis points and munis followed. Though Treasuries started to pare some of those gains Thursday morning, munis continued to firm.

“Munis are rallying,” a New York trader said. “Dealers are all bumping up their offerings. It’s just a continued, delayed reaction to Wednesday.”

On Wednesday, yields on the triple-A Municipal Market Data scale ended as much as seven basis points lower. The 10-year yield fell seven basis points to 2.67% and the 30-year yields fell four basis points to 4.29%. The two-year yield dropped three basis to 0.40% after trading flat at 0.43% for 44 straight session.

Yields on the Municipal Market Advisors scale ended as much as 10 basis points lower. The 10-year fell eight basis points to 2.83% and the 30-year yield fell five basis points to 4.37%. The two-year closed unchanged at 0.55% for the 24th session.

Treasuries were mostly weaker Thursday morning after posting big gains Wednesday after the Federal Reserve announced it would not being tapering its $85 billion-a-month bond purchasing program. The benchmark 10-year yield rose three basis points to 2.71% and the 30-year yield increased one basis point to 3.76%. The two-year yield fell one basis point to 0.32%.

In economic news, initial claims came in less-than-expected for the week ending Sept. 14, rising 15,000 to 309,000 after claims fell to a seven-year low the week before. A computer system upgrade by California and Nevada during the week of Sept. 7 kept all claims from being processed. The rise in claims this week was less than the expected 38,000 to 330,000.

“Although computer upgrade issues in California and Nevada continue to distort the claims data according to the BLS and state labor departments, we do not think this is the entire reason behind the decline in claims,” wrote economists at RDQ Economics. Bottom line, the trend in claims is probably running slightly below 330,000, which is a positive for the labor market.”

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