Treasuries continued their slide today reaching yields that have not been seen since May. The 10 year sold off to a 3.56 yld ( after an early a.m. rally to a 3.41 yld from a 3.47 close Tuesday) before closing the day at a 3.53. The 3.60 yield is the big support level that will save the slide or if breached let the market continue into the abyss. Munis of course had a ho hum day topped off by a 1 bp cut in MMD to higher yields from 2023-40.....The long treasury bond off over 1 point (6 bps from Tuesday's close) and MMD is cut by 1 bp... please...... in a market such as this NO ONE CAN DETERMINE A 1 BP CHANGE... so if treasuries continue to move towards higher rates MMD will once again be behind the proverbial eight ball.
After NYC raised the issue size of the BAB deal it sold this week, it was forced to downsize the tax exempt deal from $300mm to $109mm due to lack of institutional support in the middle of Tuesday's stunning meltdown. Selling by bond funds was clearly evident again today but was met with a few more bottom fishers trying to buy bonds sold at "sell at any cost" levels. But the number of traders willing to risk capital continues to dwindle. Some bid lists were met with only 1 bid on several items.
As each day goes by there is less access to what little liquidity remains in the marketplace. Most participants believe that January will produce a dearth of issuance and coupled with a large reinvestment, could help the market to get back on a more even keel. Expectations are for a $325 billion tax exempt calendar next year. This will be due to the probable non extension of BABs ( 2010 issuance will be +400 bil). Given the lack of long end buyers since the 2008 debacle, this should give some calm to the muni market and slow the march to higher rates and put us back to more normal ratios between munis and treasuries.
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