Top-rated municipal bonds were sharply weaker at mid-session, according to traders, with yields on long maturities rising by as much as 13 basis points.
Municipal bond traders were also dealing with the aftermath of Tuesday's surprise presidential election results, as several deals were postponed and placed on the day-to-day list due to Wednesday's market volatility.
The yield on the 10-year benchmark muni general obligation rose between nine and 11 basis points from 1.71% on Tuesday, while the yield on the 30-year increased 11 to 13 basis points from 2.54%, according to a read of Municipal Market Data's triple-A scale.
Analysts were quick to point out that caution should be the watchword of the day.
"In the short-term, we have to be careful about being whip-sawed back and forth," said Dan Heckman, senior fixed income strategist U.S. Bank Wealth Management. "The market was been poorly positioned for this, so we have to be careful about overreacting at this stage."
Out longer, he saw a different trend.
"It's not very positive for muni bond prices in the long term," he said, adding the market would be looking at a potential change in leadership at the Federal Reserve and its possible move from a monetary focus to a fiscal one.
"The likelihood of hefty fiscal stimulus coming down the pike mostly through lower tax rates has a curve steepening effect," MMD Senior Market Analyst Randy Smolik wrote in a market comment. "The steeper curve was accentuated by the economic uncertainty that will likely push Fed rate hikes in December on the back burner."
It is unclear how tax policy will play out next year, Heckman said, adding, corporate tax rates were likely to drop relatively quickly, while a decline in personal income tax rates could take longer to accomplish.
"If President Trump handles Congress the right way, he has a clear path," Heckman said, "with the House, Senate, and White House all under Republican control."
He said this could be a positive thing for infrastructure, since Trump has frequently talked about the crumbling state of U.S. infrastructure.
Fixing America's roads, bridges, tunnels and ports "is a popular item among the people," Heckman said, "and with the House and Senate with him, this perhaps gets the odds of spending up."
He said it was too early to tell how much or what shape infrastructure funding could take, but was hopeful a program like Build America Bonds could be utilized to help rebuild infrastructure.
U.S. Treasuries were weaker on Wednesday. The yield on the two-year rose to 0.87% from 0.86% on Tuesday, the 10-year Treasury gained to 2.00% from 1.86% and the yield on the 30-year Treasury bond increased to 2.80% from 2.63%.
U.S. equities reversed course after plunging overnight when Dow futures dropped over 900 points. At midday, the Dow Jones Industrial Average was up about 180 points, the S&P 500 increased around 20 points and the Nasdaq gained about 40 points.
On Tuesday, the 10-year muni to Treasury ratio was calculated at 91.7% compared to 93.1% on Monday, while the 30-year muni to Treasury ratio stood at 96.7% versus 97.3%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 32,742 trades on Tuesday on volume of $7.55 billion.
Primary Market
Voters passed at least 122 of the largest bond referendums worth a total of $48.58 billion. Over $70 billion of bonds were on the ballot, the most since 2006.
Citigroup said it priced the Bristol, Tenn., Industrial Development Board's $122 million of Series 2016A state sales tax revenue bonds and Series 2016B sales tax revenue capital appreciation bonds for the Pinnacle Project on Wednesday. Pricing information was not immediately available.
Morgan Stanley said Mississippi's $226.56 million of Series 2016A tax-exempt general obligation bond deal was placed on day-to-day status. The deal is rated AA by S&P Global Ratings.
Since 2006, the Magnolia State has issued about $5.88 billion of debt, with the most issuance occurring in 2015 when it sold $1.22 billion of bonds. It sold the least amount of securities in 2014, when it offered only $7 million of debt.
Wells Fargo Securities said that the Montgomery County, Texas' $141.43 million of Series 2016A unlimited tax road bonds and limited tax refunding bonds were also placed on day-to-day status.
JPMorgan Securities was expected to price the New Jersey Educational Facilities Authority's $137 million of Series 2016B&C higher education capital improvement fund issue bonds on Wednesday. A JPMorgan spokesperson declined to comment on the status of the deal. The bonds are rated A3 by Moody's and A-minus by S&P and Fitch Ratings.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $2.27 billion to $9.40 billion on Wednesday. The total is comprised of $2.97 billion of competitive sales and $4.43 billion of negotiated deals.
