The Federal Open Market Committee successfully pulled the Treasury yield curve out of the forge Wednesday and hammered it flatter over the anvil of Operation Twist.
On Thursday, the tax-exempt yield curve, in effect, received the same treatment.
Muni yields at the long end, nowhere near as liquid as their Treasury brethren, fell by as many as 18 basis points. Subsequently, 10- and 30-year yields hit record lows.
And though there was little product in the secondary market, it moved, a trader in Chicago said.
“These days, you’ve squeezed as much out of the grape as you could,” he said. “So, for what was there, the secondary was very active. Stuff that had been slow to move, and leftover balances, they got all of that out of there.”
Tax-exempt yields, with the exception of short-term paper, were much firmer on the day, particularly as one ventured farther out along the curve. Yields were steady out to four years, according to the Municipal Market Data scale.
They were two basis points lower at the five-year mark. Between six and eight years, yields were down six to 10 basis points. Beyond that, yields fell 11 to 18 basis points.
The 10-year muni yield Wednesday dropped 12 basis points to a record low of 1.97%. The 30-year yield plummeted 18 basis points to 3.44%.
The two-year yield stayed at 0.32% for a sixth straight session.
“That only helps our markets,” the Chicago trader said. “But at some point, we’re going to be so cheap that even crossover buyers are going to start taking a hard look, if they haven’t started to already.”
Treasury yields continued to firm across the curve Thursday. The benchmark 10-year Treasury yield, after falling eight basis points Wednesday to its lowest yield in many decades, dropped another 13 basis points to an almost incomprehensible 1.73%.
The 30-year yield, which plunged 18 basis points Wednesday, raced down another 22 basis points to 2.80%, its lowest level since Dec. 17, 2008. The two-year yield held steady at 0.21%.
But the municipal market is in a good position, even amid its impossibly low raw yields, the Chicago trader said. “We’ll continue to hang in even better than the Treasury market,” he said, “because if the Treasury market gives a little back, we won’t go up as fast. If it caroms and goes back, depending on how far, we’ll be off a lesser percentage because we went down a lesser percentage.”
The market expected a substantial increase in volume this week to $8 billion, significantly larger than the $4.6 billion weekly average this year. Last week saw a revised $6.2 billion of issuance.
On the negotiated side of the ledger Thursday, Jefferies & Co. priced $315.1 million of Wisconsin general obligation refunding bonds. The bonds were rated Aa2 by Moody’s Investors Service and an equivalent AA by Standard & Poor’s and Fitch Ratings.
Yields ranged from 0.37% with a 3.00% coupon in 2013 to 2.47% with a 5.00% coupon in 2022.
Citi priced $255.8 million of Connecticut Health and Educational Facilities Authority revenue bonds for Hartford health care. The bonds were rated A2 by Moody’s and A by Standard & Poor’s and Fitch.
Yields ranged from 1.50% with a 3.00% coupon in 2014 to 4.94% with a 5.00% coupon in 2041.
William Blair & Co. priced $157 million of Chicago Park District bonds in four series. The bonds were rated Aa2 by Moody’s, AA-plus by Standard & Poor’s and AAA by Fitch.
Yields for the first series, $36.4 million of GO limited-tax park bonds, range from 0.40% with a 3.00% coupon in 2013 to 4.35% with a 5.00% coupon in 2036. There were no more orders for debt maturing in 2013.
Yields for the second series, $21.2 million of GO limited-tax refunding bonds, range from 0.26% with a 3.00% coupon in 2012 to 2.65% with coupons of 4.00% and 5.00% in a split maturity in 2021. There were no more orders for credits maturing in 2012, 2013, and from 2017 to 2021.
Yields for the third series, $72.8 of GO unlimited-tax refunding bonds, range from 0.26% with a 2.00% coupon in 2012 to 3.98% with a 5.00% coupon in 2029. There were no more orders for debt maturing in 2012, 2022, and 2023.
Yields for the fourth series, $26.7 million of GO unlimited-tax refunding bonds, range from 0.26% with a 3.00% coupon in 2012 to 2.18% with a 4.00% in 2019. There were no more orders for credits maturing in 2012 through 2014, and in 2017.
Finally, Wells Fargo Securities priced $100 million of California Educational Facilities Authority revenue bonds for Chapman University. The bonds are rated A2 buy Moody’s.
Yields range from 0.60% with a 2.00% coupon in 2012 to 4.55% with a 5.00% coupon in 2031.
The equities markets were walloped by the fallout of the FOMC message, with all major indexes falling sharply after the announcement of its policy decision surfaced. The Dow Jones industrial average, which saw a 2.5%, 283-point plunge Wednesday, lost 3.51% Thursday, slipping 391 points.
In economic news, the Labor Department reported Thursday that initial jobless claims fell 9,000 to 423,000 on a seasonally adjusted basis for the week ending Sept. 17. Continuing claims fell to 3.727 million for the week ending Sept. 10.
With the exception of a one-week drop to 399,000 in August, initial claims have now topped 400,000 every week since April. Economists polled by Thomson Reuters predicted 420,000 initial claims and 3.730 million continuing claims.