A tired municipal market continues to drag through the week. Tax-exempt yields Wednesday morning look somewhat lighter beyond the front end of the curve, traders say, moving in tandem with Treasuries.
A large slate of supply is expected to price Wednesday. For the week, bonds have found homes without any forced selling, a trader in New York said.
"The market had run so far; it's been such a grind to lower rates that it's not surprising, given this lull, that you'd have a bit of a backup," he said. "Our market is probably in decent shape. We've certainly outperformed the Treasury market and will probably continue to do so."
Price action so far has been muted, due mostly to a perceived apathy, the trader said. "What's interesting is that you can quote stuff down, but really can't get any execution on the real bid side," he added.
JPMorgan and Wells Fargo Securities headline the primary market Wednesday. They are expected to take retail orders for a second day on $10 billion of California revenue anticipation notes, rated MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's and F-1 by Fitch Ratings. Institutional pricing is expected Thursday.
In the first retail order period Tuesday, bonds in the first series of $2.5 billion yielded 0.30% to 0.40% with a 2.5% coupon in 2013. Other portions of credits maturing in 2013 were not offered for retail. Bonds on the second series of $7.5 billion yielded 0.40% to 0.55% with a 2.5% coupon in 2013.
Some of the week's other heftiest deals should also price Wednesday. Bank of America Merrill Lynch is expected to sell $777 million of Energy Northwest, Wash., Columbia generating station electric revenue bonds. The credit is rated Aa1 by Moody's, AA-minus by Standard & Poor's, and AA by Fitch.
Barclays Capital is expected to price $125.7 million of Southern California Public Power Authority tax-exempt and taxable bonds in four series, rated AA-minus by Standard & Poor's and Fitch.
On Tuesday, the 10-year Municipal Market Data yield climbed four basis points to 1.80%, while the 30-year yield rose three basis points to 2.95%. The two-year finished unchanged at 0.29% for the 14th straight session.
Treasury yields beyond the front end of the curve have risen to start Wednesday morning. The benchmark 10-year yield skipped up four basis points to 1.77%.
The 30-year yield has also increased four basis points to 2.87%. The two-year is unchanged at 0.29%.
In economic news, the consumer price index in July was unchanged on a seasonally adjusted basis, the Labor Department reported Wednesday. It marked the second consecutive month the index held its levels.
Core consumer prices, which exclude food and energy, were up 0.1% in July. They increased by 0.2% in June.
The headline and core price indexes were each expected to rise 0.2%, according to economists polled by Thomson Reuters.
The Federal Reserve reported Wednesday that industrial production rose 0.6% in July. In addition, capacity use increased to 79.3%.
Economists polled by Thomson Reuters anticipated production would rise 0.5%, and predicted capacity use would increase to 79.2%.
Production rose 0.1% in June; it had been reported initially as a 0.4% increase. Capacity use was an unadjusted 78.9%.