NEW YORK — The municipal market, over the past couple of days, has seen a decent rally at the front end of the yield curve. Maturities up to 10 years steepened during the first two days of the trading week. And as there’s been relatively heavy supply recently, the unsold balances from last week have gotten cleaned up this week, a trader in California said.
“The market’s down a little bit,” he said. “But it seems there’s buying out there.”
Tax-exempt yields Wednesday are steady across the curve, according to the Municipal Market Data scale.
The benchmark 10-year muni yield dropped eight basis points Tuesday to 2.45%. It sits 48 basis points above the record low it held on Sept. 23.
The 30-year yield fell two basis points to 3.69%. The two-year yield remained at 0.45% for a fifth consecutive session.
Treasury yields started Wednesday’s session slightly weaker. The benchmark 10-year Treasury yield ticked up one basis point to 2.19%.
The 30-year started the morning three basis points higher at 3.20%. The two-year yield held steady at 0.28%.
The industry estimates the municipal bond market should see $6.7 billion in new issuance this week. Last week’s number was revised downward to $4.5 billion.
Three deals in particular, two negotiated and one competitive, are expected to provide a disproportionate share of the volume. One of those, the largest, $1.8 billion of tax-exempt and $200 million of taxable California general obligation bonds, completed its retail offering period Tuesday without concessions.
The state reported that retail investors ordered roughly $472 million of bonds from the $2 billion sale. California said it will hold an institutional order period Wednesday. Orders during the two-day retail order period included $386.7 million of tax-exempt bonds and $85.3 million of taxable bonds, the state reported.
Tax-exempt orders equaled 21.5% of the $1.8 billion tax-exempt component; taxable orders represented 42.6% of the $200 million taxable piece. The $472 million of combined retail orders represented 23.6% of the total $2 billion offering.
The $1 billion New York City Hudson Yards Infrastructure Corp. deal should do well, the California trader said. But the Cal GOs so far appear to have been priced aggressively, he added.
“The long end looks attractive to me,” he said. “The front end looks a couple of basis points through where you actually can buy the same structure in the secondary market. They’re going to have to cheapen the front end on the institutional side. If they get it done, it’s going to be a great deal for the state, but I think they’ll have to widen it to get more buyers to bite.”
In economic news, the Labor Department reported Wednesday that consumer prices increased 0.3% in September. At the same time, the core rate grew 0.1%, nearly in line with economists’ expectations.
Economists polled by Thomson Reuters anticipated rises of 0.3% in CPI and 0.2% in the core rate.
Higher costs in energy and food categories fueled the increase in the overall price index. Gas prices and electricity costs also rose. The food-at-home category rose for the third consecutive month. And there were no reported decreases in any major grocery store food group index.
Also, the Commerce Department reported Wednesday that the pace of housing starts soared 15.0% in September to a 658,000 seasonally adjusted annual rate. This ranks well above expectations, and represents the strongest pace since April 2010.
A 51.3% rise in multi-family building spurred the September leap in housing starts. Within those numbers, starts of homes with more than five units increased 53.4% to a 227,000 annual rate, which represents the strongest pace since September 2008.
