NEW YORK – The tax-exempt market appeared to be holding at Thursday’s levels after big cuts this week, resulting from three consecutive days of losses.
“It’s kind of steady,” a New York trader said. “But busier.”
Munis looked to be weaker Friday morning, according to the Municipal Market Data scale. Yields inside five years rose two basis points while six- to 11-year yields jumped between two and five basis points. Outside 12 years, yields spiked three to six basis points.
On Thursday, the two-year yield closed four basis points higher at 0.34% while the 10-year yield jumped four basis points to finish at 2.21%. The 30-year yield ended flat at 3.40%.
Before the big losses this week, the two-year yield had not been this high since Jan. 27. The 30-year yield hasn’t risen to this level since Jan. 10. The 10-year muni hadn’t seen these levels since Dec. 5, 2011.
Treasuries were weaker Friday morning. The two-year yield and the 30-year yield each rose one basis point to 0.38% and 3.43%. The benchmark 10-year yield jumped three basis points to 2.32%.
Muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became relatively more expensive. Since munis started weakening on Tuesday, the five-year ratio fell to 80.2% from 86.8% at the start of the week. The 10-year ratio fell to 95.6% from 99.5%. The 30-year ratio fell to 99.7% from 103.8% on Monday.
The 10- to 30-year slope of the curve fell this week as investors went further out on the yield curve. The slope fell to 123 basis points on Wednesday from 127 basis points at the beginning of the week.
In economic news, consumer prices were up 0.4% on a seasonally adjusted basis in February after rising 0.2% in January. Core prices, which exclude food and energy, were up 0.1% for the month, after rising 0.2% in January.
The CPI was on target for what economists had projected. But the core prices fell less than the 0.2% increased expected.
“Both headline and core inflation remain above the Fed’s target rate but it is unlikely that the majority on the FOMC will be concerned,” wrote economists at RDQ Economics. “Inflation is not an imminent threat to the economy but it is at levels that would justify a funds rate target of around 2% even given the degree of slack in the economy. We think views on the timing of the first rate hike will be more influenced by real economy variables than by inflation, particularly given Bernanke’s recent comments on taking into account the magnitude of the deviations from the Fed’s goals on inflation and unemployment.”
In other economic news, industrial product was flat in February after increasing a revised 0.4% in January. Capacity use fell to 78.7% from a revised 78.8%.
Economists had predicted a 0.4% increase in production and a 78.8% in capacity use.
“This report was not weaker than expected despite the flat reading on industrial production,” RDQ economists wrote. “The strength of the economy in production and hours worked does not yet seem evident in the demand-side data but we think that supply-side measures, such as these data, tell a more accurate story on growth.”