NEW YORK – The tax-exempt market continued to remain busy in both the primary and secondary markets as traders dealt with the year-to-date’s largest week of new issuance.
“It’s still pretty busy,” a New York trader said, adding the secondary is seeing action Wednesday morning after most of the week’s largest deals were priced on Tuesday. “Most of the action is in the quoted bond markets.”
Munis were steady Wednesday morning, according to the Municipal Market Data scale. On Tuesday, the 10-year yield rose one basis point to 1.91% while the 30-year yield jumped two basis points to 3.20%. The two-year was steady at 0.32% for the eighth straight session.
Treasuries were stronger Wednesday after a weaker session Tuesday. The benchmark 10-year yield dropped two basis points to 1.65%. The two-year and 30-year yields each fell one basis point to 0.30% and 2.76%.
In the negotiated market, Goldman, Sachs & Co. is expected to price for institutions $1.8 billion of Dormitory Authority of the State of New York general-purpose New York personal income tax revenue refunding bonds. The bonds are rated AAA by Standard & Poor’s and AA by Fitch Ratings.
In retail pricing Tuesday, yields ranged from 1.02% with 1.5% and 5% coupons in a split 2017 maturity to 3.60% with a 4% coupon in 2033. Credits maturing in 2025, 2026, and between 2028 and 2030 were not offered for retail. The bonds are callable at par in 2022.
In the competitive market, the Port Authority of New York and New Jersey is expected to auction $600 million of revenue bonds in two pricings – each $300 million.
The first, $300 million short-term notes, is rated M1G-1 by Moody’s, SP-1-plus by Standard & Poor’s, and F1-plus by Fitch.
The other is $300 million of revenue bonds rated Aa2 by Moody’s and AA-minus by Standard & Poor’s and Fitch.
In economic news, the producer price index fell 1.0% in May, the largest decline since July 2009 when it dropped 1.2%. Core producer prices, which exclude food and energy, rose 0.2% in April.
The decrease in the index was greater than the 0.6% drop economists had expected. But the 0.2% increase in core prices was right where economists had predicted.
“The sharp drop in inflation is an energy price and commodity story and core inflation trends have been fairly steady through this headline inflation dip,” wrote economists at RDQ Economics. “However, the Fed has switched its focus to headline inflation with its 2% PCE price inflation target and the drop in crude goods prices could point the way to lower core inflation. The doves at the FOMC meeting next week are likely to argue that the inflation story gives the Fed room to take out some insurance in the form of an extension of Operation Twist through the summer.”
In other economic news, retail sales fell 0.2% to $404.6 billion in May, following a revised 0.2% drop in April. The drop was as economists had predicted.
“A disappointing retail sales report that points to slower growth in real PCE in the second quarter than we were forecasting,” wrote RDQ economists. “This report is likely to lead to downward forecast revisions for growth in the second quarter and we would not be surprised to see consensus estimates for second-quarter real GDP growth slip slightly below 2%. However, our belief is that there are positives out there for the consumer, including the boost to real incomes from lower energy prices and job indicators do not suggest that the second-quarter jobs slowdown will be sustained. We expect spending growth to pick up in the months ahead.”
