NEW YORK – Traders are closing the books on this year as business shuts down and are already looking ahead to the new year.
“There is nothing going on,” said a trader in Chicago. “Everything is half-staffed or less. But customers may need to do something before year-end so somebody has to be here.”
He added there are some bid lists that are interesting but the motivation is not there.
Next week is expected to be even quieter than this week, he added. And the first week of January could be slow too. “Most people have anticipation for the first week of January and in the last few years, it never seems to meet expectations. Last year, it was slow and people didn’t come in looking to immediately put money to work.”
This trader said people will take a “wait and see” approach, as there is little motivation to get involved in the market in the ultra low yield environment. “The expectation for this year was that eventually rates would start rising and they haven’t,” he said. “So when is that?”
Munis were steady across the curve, except for a one basis point drop in the 30-year yield, according to the Municipal Market Data scale.
On Wednesday, the two-year yield closed flat at 0.36% for its eleventh consecutive trading session. The 10-year muni yield increased one basis point to 1.93%, from the record low as recorded by MMD set Monday. The 30-year muni yield increased two basis points to 3.64%.
The Treasury curve was flattening as traders sold short-term bonds to favor the long-end. The two-year yield rose one basis point to 0.29%, while the 10-year and 30-year yields fell three basis points each to 1.94% and 2.97%, respectively.
The Securities Industry and Financial Markets Association recommended an early close of 2 p.m., Eastern time, for bond trading on Friday and a full close on Dec. 26.
Munis have been able to hold mostly steady despite a big sell-off in Treasuries. On Wednesday, the five-year and 10-year muni-to-Treasury ratio closed below 100%. The five-year ratio closed at 98.9%, down from 113.8% on Monday. The 10-year ratio closed at 98%, down from 106.7% on Monday. The 30-year muni-to-Treasury ratio closed down to 121.3% from 129.4%.
In economic news, real gross domestic product grew at an annual rate of 1.8% in the third quarter, slightly below the estimated 2% expected. But it was higher than the final 1.3% annual rate of growth reported for the second quarter.
“The modest downward revision to real GDP growth was a result of slower growth in inflation-adjusted consumer spending than previously reported, offset somewhat by an upward revision to capital spending and less inventory liquidation than the preliminary data suggested,” analysts at RDQ Economics noted. “We believe the economy is on an improving trend and we look for fourth-quarter real GDP growth of around 3% and this report does nothing to change that.”
Initial jobless claims fell 4,000 to 364,000 for the week ending Dec. 17, the lowest since April 19, 2008 when claims were 352,000.
The initial claims were lower than the 380,000 expected by economics.
“This is the second week in a row that initial jobless claims have been decisively below the 400,000 mark,” wrote analysts at RDQ. “These claims data suggest a marked slowing in the rate of involuntary separations and, therefore, point to a pickup in the rate of net job creation. Unfortunately, we are headed into a period where claims become a less reliable indicator of the economy and the labor market around the turn of the year due to problems of seasonal adjustment, but for now we are encouraged that these data point to a gain in private-sector employment.”
