Softness Persists as California Completes Private Placement

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Weakness in the municipal market persisted Friday for the eighth consecutive session, while California's Bay Area Toll Authority completed a $194 million private placement of general obligation bonds.

Tax-exempt yields higher by about three or four basis points Friday.

"It's pretty quiet, but we're down again," a trader in New York said. "It's basically the same story as the rest of the week. A bit of trading in the secondary market, but a weaker overall tone in the market, and a couple basis points off. Secondary trading is a bit lighter, but just because it's Friday. I'd say we're down three basis points, maybe two in spots, maybe four in others. But about three basis points overall."

"I think a lot of people were just ready for the weekend going into the day, but we still did see some movement," a trader in Los Angeles said. "We're down at least a few basis points, probably anywhere from two to four, but I'd say closer to the four-basis-point end."

The Treasury market mostly showed losses Friday, though there were gains on the short end. The yield on the benchmark 10-year note, which opened at 2.99%, was quoted near the end of the session at 3.04%. The yield on the two-year note was quoted near the end of the session at 1.00% after opening at 1.08%. The yield on the 30-year bond, which opened at 3.67%, was quoted near the end of the session at 3.72%.

As of Thursday's close, 10-year tax-exempt bonds were trading at 103.4% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were trading at 132.1% of comparable Treasuries.

Activity in the new-issue market was light Friday. However, the Bay Area Toll Authority completed a $194 million private placement of GOs to finance work on 11 road projects in the Bay Area and other northern California counties. This is the first time the state has completed a private placement, with the bonds only offered to BATA.

In economic data released Friday, preliminary fourth-quarter gross domestic product fell 6.2%, after a 3.8% drop the previous estimate. Economists polled by Thomson Reuters had predicted a 5.4% decline.

The Chicago Purchasing Managers' Business Barometer rose to 34.2 in February from 33.3 in January. Economists polled by Thomson predicted a 33.0 reading for the indicator.

The University of Michigan's final February consumer sentiment index reading was 56.3 compared to the preliminary February reading of 56.2. Economists polled by Thomson Reuters had predicted a 56.0 reading for the index.

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