NEW YORK – The tax-exempt market is ending the week on a strong note, following Treasuries, after European finance leaders rejected Greece’s spending cuts and once again pushed investors into safe haven assets.
“We are seeing a rally,” a New York trader said. “Treasuries are up because of Greece, which carries over to us.”
Munis were higher Friday morning, reversing five consecutive days of losses, according to the Municipal Market Data scale. Yields inside four years were steady while yields outside five years fell as much as four basis points across the curve.
On Thursday, the two-year held steady at 0.29%, its record low as recorded by MMD on Tuesday. The previous record of 0.30% was set Aug. 10. The 10-year yield rose two basis point to 1.87% while the 30-year yield jumped four basis points to 3.29%. The losses erased all gains made since Jan. 25.
Since munis started weakening last Friday, the 10-year yield has jumped 18 basis points while the 30-year yield has spiked 15 basis points.
Treasuries gained, erasing Thursday’s losses and opened at levels seen on Wednesday. The benchmark 10-year and the 30-year yields fell five basis points to 1.99% and 3.14%, respectively. The two-year was steady at 0.28%.
Since munis began weakening last Friday, muni-to-Treasury ratios have risen on the long end as munis underperformed and became cheaper. The 10-year ratio increased to 91.7% on Thursday from 90.8% last Friday. The 30-year ratio rose to 103.1% from 102.2% last Friday.
The five-year ratio reversed, falling to 79.1 on Thursday from 87.2% last Friday.
The slope of the yield curve continues to flatten. The 10- to 30-year slope fell to 142 basis points from 145 basis points last Friday. Since the beginning of the year, the slope has flattened from 169 basis points.
In economic news, the U.S. international trade deficit rose to $48.8 billion in December, up 3.7% from November’s revised $47.1 billion deficit. The December deficit was larger than the $48.3 estimated by economists.
“Although export growth was lackluster in the fourth quarter, import growth has been strong, which has widened the trade gap,” wrote economists at RDQ Economics. “Strength in imports tends to indicate rising domestic demand growth and, therefore, is a sign of strength in the U.S. economy – particularly given the gains in capital goods imports.”