The Fed matches muni expectations with 25 BP cut

The municipal market got what it expected, when the Federal Open Market Committee announced its decision to lower interest rates by 25 basis points.

Since the market had forcasted a 25 basis-point rate cut by the Federal Reserve Board Wednesday — and much of its impact was already built into the market — there was not much immediate reaction seen or expected after the decision was confirmed, municipal sources said.

"We have not seen any bumps yet, but probably will get bumped a couple ticks," John Mousseau, president and director of fixed income at Cumberland Advisors said Wednesday.

"There's no question municipals will be under-performing Treasuries," he added. "To the extent that longer rates decline, we think it's an excellent opportunity for municipalities to sell longer-dated paper for long-term infrastructure."

The rest of this week will remain quiet for munis, deal wise before things pick up significantly next week. An early look at the calendar for next week says that we could be in store for the biggest volume week of the year.

“Well we got past the fed today with no surprises, while the outlook for the rest of the year in terms of interest rates remains murky,” said one New York trader. “For now, we can breathe easy and start focusing on the big slate coming up.”

Secondary market
Munis were stronger in late trading on the MBIS benchmark scale, with yields falling by four basis points in the 10-year and by less than one basis point in the 30-year maturity. High-grades were also stronger, with MBIS’ AAA scale showing yields lowering by four basis points in the 10-year and by no more than two basis points in the 30-year maturities.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10- and 30-year GO yield were unchanged from 1.52% and 2.24%, respectively.

The 10-year muni-to-Treasury ratio was calculated at 75.2% while the 30-year muni-to-Treasury ratio stood at 88.7%, according to MMD.

Treasuries were down and stocks traded in the red. The Treasury three-month was yielding 2.080%, the two-year was yielding 1.890%, the five-year was yielding 1.840%, the 10-year was yielding 2.021% and the 30-year was yielding 2.527%.

Previous session's activity
The MSRB reported 33,095 trades Tuesday on volume of $10.386 billion. The 30-day average trade summary showed on a par amount basis of $10.67 million that customers bought $5.56 million, customers sold $3.17 million and interdealer trades totaled $1.93 million.

California, Texas and New York were most traded, with the Golden State taking 17.246% of the market, the Lone Star State taking 11.912% and the Empire State taking 9.77%.

The most actively traded security was the Silicon Valley Clean Water 3s of 2024, which traded 12 times on volume of $51.79 million.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Ziad Saba at 212-803-6079 for more information.