Yields in the municipal market edged higher Friday for the first time this month after Federal Reserve chairman Ben Bernanke assured market participants the Fed would take “unconventional measures” to fix the economy if needed.
Traders said tax-exempt yields were higher by two basis points overall.
“There really wasn’t much activity, but Bernanke’s comments pushed Treasuries higher and that carried over to us,” a trader in Los Angeles said. “But other than that, there wasn’t a ton trading today. There are some people out. It’s that time of year.”
Bond market activity typically slows in the weeks before Labor Day.
“I’m not sure I would have cut the scale today just because there’s so little trading,” the trader said, “but it did feel a bit weaker.”
The Municipal Market Data triple-A scale again yielded record lows of 2.17% in 10 years and 3.32% in 20 years Friday, following record lows of 2.17% and 3.30% Thursday.
The scale yielded 3.69% in 30 years Friday, following Thursday’s all-time low of 3.67%.
Though yields increased Friday they remain at historic lows. Yields were compressed to all-time lows in 10-year munis 12 times in the past 15 sessions. Meanwhile, 20- and 30-year tax-exempts reached record lows four times in the past six sessions.
Friday’s triple-A muni scale in 10 years was at 82.6% of comparable Treasuries and 30-year munis were at 100.0%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 109.8% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Friday. The benchmark 10-year note finished at 2.65% after opening at 2.47%.
The 30-year bond finished at 3.70% after opening at 3.54%. The two-year note finished at 0.57% after opening at 0.51%.
Activity in the new-issue market was light Friday on a day that also saw the annualized economic growth rate in the second-quarter revised downward to 1.6% from an originally reported 2.4%.
The University of Michigan’s August consumer sentiment index reading also was revised downward Friday to 68.9 from a preliminary reading of 69.6.
The two economic indicator reports come on the heels of a number of other data releases indicative of slowing economic growth.
Bernanke said Friday that the Fed realizes further monetary policy accommodation could be needed in the future and is prepared to take unconventional measures if the economic outlook deteriorates “significantly.” He spoke during an annual economic symposium in Jackson Hole, Wyo.
Diane Swonk, chief economist at Mesirow Financial, said Bernanke made it clear through “both his overt remarks and his body language that although the Federal Open Market Committee does not have a consensus view about what to do in these uncertain and unchartered waters, he was willing to do something rather than nothing.”