NEW YORK – The rally that created a flurry of activity earlier in the week has stalled, with trading quiet Friday morning and munis mostly weaker for the second trading session.
“It’s dead. Very quiet,” a New York trader said. “There is a good amount of bid-wanteds out early and plenty of price cuts. I’m sure we’ll get another cut today going into the weekend.”
He added a more sizeable calendar is expected next week and he is “interested to see how those are received.”
Munis were weakening for the second day in Friday morning trading, according to the Municipal Market Data scale. Yields inside five years were steady. The six-year and seven-year yields rose between three and five basis points. The eight-year to 15-year jumped between two and six basis points. Outside the 16-year, yield rose up to three basis points.
On Thursday, the 10-year yield finished up seven basis points at 1.74%. The 30-year yield jumped 10 basis points to 3.25%. The two-year closed steady at 0.35% for its fourth consecutive trading session.
Thursday was the first day of weakening this year. Before that, the 10-year and 30-year muni yields broke record lows for six consecutive trading sessions, falling 15 and 25 basis points, respectively.
Treasuries continued to erase gains made the past several weeks, continuing a third day of weakening. The benchmark 10-year yield rose three basis points to 2.01% while the 30-year yield jump four basis points to 3.08%. The two-year yield held steady at 0.25%.
Since the beginning of the year, muni-to-Treasury ratios have fallen. On Thursday, ratios continued to fall as munis outperformed Treasuries. The five-year muni-to-Treasury ratio fell to 93% on Wednesday from 98.9% on the first day of trading in 2012. The 10-year ratio fell to 87.9% from 96.4% and the 30-year ratio fell to 106.9% from 119.4% on the first day of trading this year.
In economic news, existing home sales increased 5.0% in December to a 4.61 million-unit rate from a revised 4.39 rate in November. Existing home sales came in below the 4.64 million expected by economists.
“Existing home sales have shown a decent bounce in recent months accompanied by a deceleration in price declines that suggest sales conditions in the home resale market may be improving,” wrote economists at RDQ Economics. “Our view is that the housing market will show modest improvement in 2012 with a small pickup in construction activity and a stabilization in home prices.”
