The municipal market was unchanged to slightly firmer yesterday, as the Federal Open Market Committee lowered the federal funds rate target 25 basis points to 2%.
"There's some firmness in the market, but it hasn't been reflected so much in the scale," a trader in New York said. "Yields are lower by a basis point or two at best, but I'd call it largely unchanged."
"We didn't react much to the Fed decision," a trader in Los Angeles added. "We were a bit better before the decision, and we were still a bit better after it ended. We had that 25-basis-point cut pretty well priced in."
The Treasury market showed gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.83%, finished at 3.76%. The yield on the two-year note was quoted near the end of the session at 2.29% after opening at 2.36%.
The FOMC lowered the fed funds rate target to 2% from 2.25%, a move the market "was pretty well primed for," according to Jonathan Basile, economist at Credit Suisse.
"It looks like they are signaling that they are not looking to do anything additional right now," he said. "They omitted a couple of different references from the last statement, like 'downside risks to growth remain,' which is usually a reference that they might do more. They also omitted a reference that says they 'will act in a timely manner,' and inserted instead that they're going to monitor things, that they're going to monitor economic and financial developments. So, when you monitor something, you really don't act. You sit back and you wait."
The FOMC also added the sentence: "The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity."
"Their wording 'substantial easing' came right out of the minutes of the March meeting, so it seems they were moving in that direction, that they were thinking of publicly saying something like that," Basile said. "It didn't come out in the March statement, it came out in the minutes, and now it's come out in this statement, so all of that hints that they'd prefer not to do more."
"Our view was, and has been for a few months now, that the Fed would pause at 2%, and their body language [yesterday] suggest that has come to fruition," he added.
However, Richard W. Fisher, president of the Federal Reserve Bank of Dallas, and Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia dissented, as they "preferred less aggressive action at this meeting," according to the FOMC's statement. In addition to the 25-basis-point lowering of the federal funds rate target, the committee also lowered the primary credit discount rate 75 basis points to 2.5%.
In the new-issue market yesterday, Morgan Stanley priced $335.1 million of tax-exempt and taxable revenue bonds for the Miami-Dade County Educational Facilities Authority. Bonds from the $295 million tax-exempt Series A mature from 2016 through 2024, with term bonds in 2028 and 2038. Yields range from 4.42% with a 5.25% coupon in 2016 to 5.60% with a 5.50% coupon in 2038. The bonds are callable at par in 2016. The deal also contains the $40.3 million taxable Series B, which matures in 2015. The credit is rated A2 by Moody's Investors Service and A-minus by Standard & Poor's.
Banc of America Securities LLC priced $300 million of home mortgage revenue bonds for the California Housing Finance Agency in two series, subject to the alternative minimum tax. Bonds from the $75 million Series J mature from 2009 through 2018, with yields ranging from 3.375% in 2009 to 5.125% in 2018, all priced at par. Bonds from the $225 million Series K mature in 2023, 2028, 2033, and 2038, with yields ranging from 5.35% in 2023 to 5.65% in 2038, all priced at par. All bonds are callable at par in 2017. Bonds from Series J are insured by Financial Security Assurance Inc. Bonds from Series K are uninsured. The underlying credit is rated Aa2 by Moody's and AA-minus by Standard & Poor's.
In economic data released yesterday, the advance first-quarter gross domestic product reading came in at a 0.6% rise after a 0.6% increase the previous quarter. Economists polled by IFR Markets had predicted a 0.3% growth level for GDP.
The Chicago Purchasing Managers' Business Barometer rose to 48.3 in April from 48.2 in March. 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 predicted a 47.5 reading for the indicator.
More economic data will be released this week, led tomorrow by the April non-farm payrolls report. Today will see the release of March personal income, March personal consumption, the March core personal consumption expenditures deflator, initial jobless claims for the week ended April 26, continuing jobless claims for the week ended April 19, the April Institute for Supply Management business activity composite index, and March construction spending. Tomorrow, in addition to payrolls, March factory orders will be released.
Economists polled by IFR Markets are predicting a loss of 75,000 jobs, a 0.3% uptick in personal income, a 0.3% increase in personal consumption, 0.2% growth to the core PCE deflator, 360,000 initial jobless claims, 2.950 million continuing jobless claims, a 48.0 ISM index reading, a 0.9% dip in construction spending, a 0.3% jump in factory orders, and a 2.0% increase in factory orders excluding transportation.