NEW YORK – With the primary market slowing down, the tax-exempt market turned to the secondary Thursday morning.
“I think there is definitely some money to be put to work,” said a trader in Chicago. “And it is constructive and no one is taking credit risk. Everyone is aware of credit risk.”
But this trader added market participants are taking call risk. “Call risk is what’s for dinner.” He said business in the past few days has been driven by credits that are callable between 2013 and 2015. “Individual investors will take a chance that the bonds won’t be called, they won’t get their principal back, and they’ll get a much higher yield to maturity than what a par bond would give them in 2024,” he said.
“You can pick up 100 basis points more than par bonds with the same maturities,” he added, but the credits still need to be solid general obligation or revenue bonds.
Munis were weakening, according to the Municipal Market Data scale. Yields were mostly steady on the short-end, with a one basis point jump in the belly of the curve and a two basis point increase on the long-end.
On Wednesday, the two-year muni closed at 0.42% for its 20th consecutive trading session. The 10-year finished flat at 2.22% and the 30-year yield finished up five basis points to 3.84%.
Treasuries were seeing a small sell-off Thursday morning with yields rising across the curve. The two-year yield was up one basis point to 0.27%. The benchmark 10-year yield rose five basis points to 2.13% and the 30-year yield increased seven basis points to 3.14%.
In the primary market, the competitive calendar takes the lead Thursday. The Kansas Development Finance Authority will auction $119.1 million of revenue bonds. The credit is rated Aa3 by Moody’s Investors Service and AA by Standard & Poor’s.
In the negotiated market, Barclays is expected to issue $55 million of California Municipal Finance Authority revenue bonds on behalf of Emerson College. The credit is rated Baa1 by Moody’s and BBB-plus by Standard & Poor’s.
In economic news, seasonally adjusted initial jobless claims rose to 402,000 for the week ending Nov. 26, a 6,000 increase from the previous week, the Labor Department said.
The level was higher than the 390,000 projected by economists polled by Thomson Reuters.
“Though initial jobless claims were higher than expected, this report covers the week that includes the Thanksgiving Day holiday, which can make seasonal adjustment more difficult,” wrote analysts at RDQ Economics.
