Weakness in the municipal market continued Friday, despite Treasury market gains, as tax-exempts continue to diverge from Treasuries.
Traders said tax-exempt yields were weaker by about 10 basis points.
"I don't know that there's enough out there to soothe away the day. It has been incredibly ugly," a trader in Los Angeles said. "I've been doing this for 37 years, but I can never remember a time where you have had a Treasury market go up so much in two days, while the municipal market went down this much."
Also, Standard & Poor's Securities Evaluations released a statement Friday indicating that, effective immediately, it will cease pricing 2,799 municipal auction-rate securities and 248 taxable auction-rate securities, which were identified by Cusip.
"As a provider of pricing on municipal bonds and student loan auction-rate securities, Standard & Poor's Securities Evaluations has been closely monitoring the ARS market for some time and is concerned about the rising occurrence of failed auctions in recent weeks," the statement said. "In addition, it has become increasingly difficult to identify which auctions have been successful and which have failed. We have also observed that the majority of activity in the secondary market appears to be limited to securities which have had successful auctions or securities which have had failed auctions with high coupon rates."
The statement continued, "given the market environment outlined above, effective immediately, we will cease pricing the ARS securities that are identified ... in the absence of any additional information on the affected securities."
The Treasury market showed gains Friday. The yield on the benchmark 10-year Treasury note, which opened at 3.67%, finished at 3.52%. The yield on the two-year note was quoted near the end of the session at 1.63, after opening at 1.82%.
In economic data released Friday, personal income rose 0.3% in January, after a 0.5% increase the previous month. Economists polled by IFR Markets had predicted a 0.2% uptick. Personal consumption rose 0.3% in January, after a revised 0.3% uptick the previous month. Economists polled by IFR had predicted a 0.2% increase. The core personal consumption expenditures deflator remained 2.2% in January. Economists polled by IFR had predicted a 2.2% level.
The Chicago Purchasing Managers' Business Barometer fell to 44.5 in February from 51.5 in January. The data is compiled on a seasonally adjusted basis. An index reading below 50 signals a slowing economy, while a level above 50 suggests expansion. Economists polled by IFR Markets predicted a 50.0 reading for the indicator.
The University of Michigan's preliminary February consumer sentiment index reading was 70.8, compared to the preliminary February reading of 69.6. Economists polled by IFR had predicted a 70.0 reading for the index.
Activity in the new-issue market was light Friday.
