NEW YORK – The tax-exempt market appears to be holding steady in Wednesday morning trading. Treasuries were reversing their rally as yields rose across the curve, erasing all of Tuesday’s gains.
“Generally speaking, after the big bumps we saw yesterday, the market is trying to see if we really believe them or not,” said a trader in Los Angeles. “The muni market is searching for what is the correct level.”
On the long end, spreads are widening. “We did a deal yesterday and the long term bonds were done at a generous spread,” the L.A-based trader said. Lower-rated credits may be spreading out too. “The thought is [Municipal Market Data] is looking at pure triple-A trades and anything that is not triple-A is spreading out wider.”
“The joke is who would have thought a year ago that the U.S. market would be completely driven by Greece?” the trader asked. “It’s up and down each day and back and forth.”
In Wednesday morning trading, muni yields were steady along the short end of the curve, according to the MMD scale. Yields rose one basis point 10-years on out.
On Tuesday, the two-year closed at 0.42% and the 30-year was at 3.65%. The benchmark 10-year muni yield closed at 2.28%.
Wednesday morning, Treasuries prices fell, pushing yields up and paring all gains made Tuesday. The 10- and 30-year yield were back up over 2% and 3% respectively, opening at 2.07% and 3.10%. The two-year was steady at 0.24%.
Although both munis and Treasuries rallied yesterday, Treasuries outperformed, with the 10-year muni-to-Treasury ratio increasing to 115.2%. The 30-year muni-to-Treasury ratio increased to 122.1%.
In the competitive market Wednesday, San Francisco will auction $94 million of revenue bonds. The bonds are rated Aa3 by Moody’s Investors Service, AA-minus by Standard & Poor’s and A-plus by Fitch Ratings.
In other economic news, market participants will eye the FOMC policy statement that will be issued Wednesday afternoon. MMD analyst Daniel Berger noted that while the market does not expect any further easing, “we may see some hints in the statement that they are leaning in the direction of further accommodation.”
