Munis End Unchanged to Slightly Firmer

The municipal market was unchanged to slightly firmer Friday amid fairly light secondary-trading activity.

Traders said tax-exempt yields were mostly flat, but with gains of one or two basis points on the long end.

“There’s not a lot happening right now,” a trader in New York said. “We’re pretty quiet, pretty flat. There are some bits and pieces trading, but activity is light for the most part and we’re just unchanged.”

The Municipal Market Data triple-A 10-year scale dipped three basis points Friday to 3.31%, the 20-year scale declined two basis points to 4.56%, and the scale for 30-year bonds fell two basis points to 4.78%.

In the daily MMD commentary, Randy Smolik wrote: “Munis showed only modestly better bias, perhaps showed some exhaustion after a week of grinding lower in yields.”

Friday’s triple-A muni scale in 10 years was at 99.4% of comparable Treasuries and 30-year munis were at 105.5%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 112.5% of the comparable London Interbank Offered Rate.

Treasuries showed gains Friday. The benchmark 10-year note finished at 3.33% after opening at 3.39%. The 30-year bond finished at 4.53% after opening at 4.56%. The two-year note finished at 0.56% after opening at 0.58%.

In economic data released Friday, the U.S. economy expanded at a faster annual pace in the fourth quarter, growing 3.2% due to the stronger consumer spending.

Economists expected gross domestic product to increase 3.6% for the quarter. The third-quarter GDP expanded 2.6%.

“The economy is showing signs of getting back on track, but unevenly. The decline in imports, in particular, cannot continue,” said Diane Swonk, chief economist at Mesirow Financial. “We will need to see much stronger growth elsewhere in the economy to compensate for that in 2011.”

Consumer spending, which accounts for about 70% of GDP, rose 4.4% during the three-month period ended Dec. 31 — the largest gain since the first quarter of 2006. Consumption of durable goods was up 21.6%.

Meanwhile, inflation slowed to a new record. Personal consumption expenditures excluding food and energy goods, the Federal Reserve’s preferred inflation measure, rose just 0.4% — the smallest gain since record-keeping began in 1959.

Core PCE rose 0.5% in the third quarter. That compares with a 2.8% gain for the inflation gauge in the fourth quarter of 2007, near the start of the recession.

Consumer sentiment fell in January, dropping to 74.2 from a prior-month reading of 74.5 in the Thomson Reuters/University of Michigan report released ­Friday.

An employment index used to track overall labor costs rose 0.4% for the final three months of 2010 on a seasonally adjusted basis.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER