NEW YORK – The tax-exempt market appears to be quiet before the storm. Trading activity is slower Wednesday morning ahead of several big deals expected to hit the market later today.
“The market is quieter,” said a New York trader.
Munis continued to firm Wednesday morning, according to the Municipal Market Data scale. Yields inside the six-year were steady while yields outside the seven-year fell one or two basis points.
On Tuesday, the two-year closed steady at 0.35% for its third consecutive trading session. The 10-year yield closed down two basis points to 1.69%, beating the previous record of 1.71% as recorded by MMD Friday. The 30-year dropped three basis points to 3.17%, beating the previous record of 3.20% registered on Friday.
Treasuries were weaker in Wednesday morning trading. The benchmark 10-year yield rose one basis point to 1.86% and the 30-year yield rose two basis points to 2.91%. The two-year yield was steady at 0.23%.
In the primary market Citi is expected to price $463 million of Massachusetts new and refunding general obligation SIFMA index bonds, a surprise deal added to the calendar Tuesday.
Morgan Stanley priced $129 million of Metropolitan Government of Nashville and Davidson County water and sewer revenue refunding bonds Wednesday morning. The credit is rated A1 by Moody’s Investors Service and A-plus by Standard & Poor’s.
On the competitive calendar, the Port Authority of New York and New Jersey will auction $400 million of revenue bonds, rated Aa2 by Moody’s and AA-minus by Standard & Poor’s.
Fairfax County, Va., is expected to sell $220 million of general obligation bonds, rated triple-A by Moody’s and Standard & Poor’s.
In economic news, the producer price index fell 0.1% in December after a 0.3% increase in November. Core producer prices, excluding food and energy, rose 0.3% after a 0.1% rise the month before, the Labor Department said.
The producer price index did not meet analyst predictions of a 0.1% gain. But the core price index beat the 0.1% gain expected by economists.
“Although declines in wholesale prices of both finished food and energy declined in December, core inflation was higher than expected with about one-third of the increase coming for motor vehicles,” wrote economists at RDQ Economics. “The pass-through of lower core intermediate and crude goods prices offers the prospect of some slowing in finished goods prices in the near term but it remains to be seen how much of these price declines will be passed through to the consumer rather than being used to enhance profit margins.”
In other economic news, industrial production rose 0.4% in December after falling 0.3% in November, the Federal Reserve said. The increase in industrial production was lower than the 0.5% increase expected by economists.
“The gains in manufactured output were broad based in December and the sector appeared to be on an upswing as the year came to an end,” wrote RDQ economists. “The evidence that manufacturing in the U.S. is gaining global market share appears to be growing and this could be an important dynamic supporting growth in 2012.”