NEW YORK – After a five-day rally that pushed yields down 25 basis points in the belly of the curve, the tax-exempt market is taking a breather Wednesday morning.
“Munis are quiet today and nothing great is going on,” a New York trader said. “Supply of bonds in the street spiked over the last couple days, which is weird. People were looking to sell but weren’t able to.”
The Municipal Market Data scale was not updated by press time. On Tuesday, the two-year yield finished steady at 0.36% for its eighth consecutive trading session. The 10-year yield dropped six basis points to 2.08% while the 30-year yield closed down three basis points to 3.37%.
Treasuries were slightly weaker. The two-year and benchmark 10-year yield each rose one basis point to 0.34% and 2.20%. The 30-year yield jumped two basis points to 3.32%.
In the primary market, Wells Fargo is expected to price for institutions $200 million of Rochester, Minn., health care facilities revenue bonds for the Mayo Clinic. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.
RBC is expected to price $150.8 million of Minnesota Finance Housing Agency residential housing finance bonds in four series, rated Aa1 by Moody’s and AA-plus by Standard & Poor’s.
The first series should be $50.95 million of alternative minimum-tax refunding bonds. The second should contain $8.83 million of refunding bonds. The third should consist of $30.98 million of refunding bonds. The last should include $60 million of new-money bonds.
Bank of America Merrill Lynch is expected to price $149 million of Wisconsin Health & Educational Facilities Authority ministry health care bonds. They are rated A-plus by Standard & Poor’s.
In the competitive market, Florida is expected to auction $226 million of GOs, rated Aa1 by Moody’s and AAA by Standard & Poor’s and Fitch Ratings.
Since munis started strengthening last Wednesday, muni-to-Treasury ratios rose as munis underperformed Treasuries and become comparatively cheaper. The five-year muni-to-Treasury ratio jumped to 98% from 85% last Tuesday. The 30-year ratio increased to 102.1% from 100.3% on Tuesday.
The 10-year ratio fell to 95% from 98.3% when munis started firming last Wednesday as munis outperformed Treasuries and became comparatively more expensive.
The slope of the curve widened to 129 basis points from its 12-month low of 114 basis points last Tuesday before munis started rallying.
In economic news, durable goods orders rose 2.2% in February, or $4.5 billion, to $211.8 billion. The rise came after a fall of 3.6% in January. The 2.2% increase in February fell below analyst expectations of 3.0%.
Excluding transportation, new orders climbed 1.6% in February, falling short of the 1.7% expected by economists.
“Given the volatility in the monthly data for durable goods orders, we can see nothing here that would contradict the message from other manufacturing reports that the manufacturing sector is expanding at a fairly robust pace,” wrote economists at RDQ Economics. “Through the volatility, order growth is expanding over the last three months although seemingly at a pace that is slower than over the last year. In short, the picture is one of continued solid growth, and strongly rising order backlogs suggest that this will likely continue.”
