Municipal bonds softened Wednesday and Treasuries yields rose as market participants feared the Federal Open Market Committee meeting would result in a tapering announcement.
Traders were mixed over whether the Fed will say it is ready to slow its asset purchase program, though many were of the belief that this could be the last Federal Open Market Committee announcement before the taper occurs.
The FOMC determines Fed policy and dictates interest rates in the U.S. Participants in the muni market have faced an ongoing threat of the Fed reducing its monthly asset purchase program since it first introduced the idea of tapering in the spring.
"Although better-than-expected labor reports for October and November have increased expectations that Fed officials will taper quantitative easing on Wednesday, we maintain that QE reduction is more likely to occur at the January FOMC meeting," US Bank's wealth management group said in a report Wednesday. "This week, we anticipate Fed officials to strongly signal that tapering will occur soon if the improvement in the labor market is sustained."
Treasuries continued to weaken into midday Wednesday, with the benchmark 10-year jumping five basis points to 2.89% and the 30-year rising three basis points to 3.90%. The two-year yield gained four basis points to 0.36%.
Yields on the Municipal Market Data triple-A scale Monday were steady from 2014 to 2026, and lower on the long end of the curve. Bonds maturing between 2027 and 2040 saw yields drop as much as a basis point, and those maturing between 2041 to 2043 fell up to two basis points.
Estimates for this week's volume show a lighter offering of new issues, with potential muni bond volume on the week expected to be $2.59 billion, according to data from Ipreo, The Bond Buyer and Thomson Reuters. That compared with $10.63 billion of sales in the week prior.
The biggest deals of the week priced Tuesday, including $283 million of Guggenheim Securities LLC-led Pennsylvania parking revenue bonds and $112 million of Goldman, Sachs & Co-led El Paso, Texas, general obligation bonds.
RBC Capital Markets also priced $138.7 million of Colorado State University revenue bonds Tuesday afternoon ahead of final pricing Wednesday. The bonds are enhanced by a state intercept program and have underlying ratings of Aa2 by Moody's Investors Service and AA-minus by Standard & Poor's Ratings Services. Yields on the bonds ranged from 0.25% with a 3% coupon in 2015 to 4.61% with a 5% coupon in 2045. The bonds are callable at par in 2023.