NEW YORK — Light activity in the primary and secondary characterized the municipal market Thursday afternoon.
Muni yields, which this week have stopped their descent, have looked to Treasuries for direction. Treasury yields have, in turn, looked to the Federal Reserve meeting in Jackson Hole, Wyo., highlighted by Chairman Bernanke’s speech Friday, as well as to Europe, a trader in Chicago said.
“The true meaning of this is that we got the focus back to where it should be, and that’s on the European sector; they’re struggling,” he said. “Get the focus off [Bank of America]. Gold is a reflection of confidence in foreign markets. That’s part of the reason why Treasuries are down. People are worried about rates and worried about where to invest.”
A trader in New York agreed. “Everything’s been following movement of Treasuries this morning, trying to get some further guidance as to where rates are going to go,” he added. “A lot of people are waiting to see where things settle in, as well as the news that comes out of Jackson Hole tomorrow.”
The Municipal Market Data scale had yet to update tax-exempt yields by press time. They were steady across the curve earlier in the day, following a day of noticeable softening.
Treasury yields are firmer heading into the afternoon. The 10-year benchmark yield, after climbing 15 basis points Wednesday, has fallen six basis points to 2.24%.
The 30-year yield, after rising 17 basis points Wednesday, has slid four basis points to 3.61%. The two-year yield has dropped two basis points to 0.22%.
The 10-year muni yield rose six basis points Wednesday to 2.25%, and 10 basis points in two days, after sitting at its all-time low for the previous three sessions.
The 30-year muni yield also vaulted six basis points to 3.88%. The two-year yield held at 0.30% for an 11th straight session, its lowest yield in more than 40 years.
New issuance, although sparse for the week, met a healthy appetite Wednesday, even through concession in yield. The industry predicts municipal bond sales of $3.65 billion against a revised $4.72 billion last week.
And next week’s pre-Labor Day primary calendar is expected to be particularly light, according to Janney Capital Markets analyst Alan Schankel.
In negotiated sales, Piper Jaffray priced $121.2 million of Harris County, Texas, unlimited tax road refunding bonds. The bonds are rated AAA by Standard & Poor’s and Fitch Ratings.
Yields range from 0.43% with a 3.00% coupon in 2013 to 3.94% with a 5.00% coupon in 2031. Credits maturing in 2012 were offered in a sealed bid.
Reinvestment flows were a hot topic this summer, boosting investor demand, Schankel said. But that will change as the days cool.
“The pace of redemptions and maturing bonds will slow in September to $12.5 billion,” he said, “about half of the monthly average for June through August.”
The equities markets evidently didn’t like what it saw in the Labor Department’s jobless claims report. And Warren Buffett’s $5 billion investment, through Berkshire Hathaway, in Bank of America didn’t do much to change their minds. The major indexes are down at least 1.08% heading into the afternoon. The Dow Jones Industrial Average has lost almost 123 points.
