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Signs Point to Lull in Market Turmoil
Treasury yields rose for the second straight week as investors sold government
debt to buy higher yielding investments, a signal that the ongoing
credit-market turmoil might be easing. Last week, Citigroup and Merrill Lynch
led the market in selling $45 billion in corporate bonds, the highest weekly
volume on record. The 2-year note led the Treasury bond decline, rising 29
basis points last week and 39 bps the previous week, its biggest 2-week loss
since 2001. Rising commodity prices have stoked inflationary fears. Since
August, the annual inflation rate has doubled to 4%. Market participants now
anticipate a 78% chance that the Fed will cut its rate by 25 bps when it meets
later this week. Two weeks ago, the market was split between a 25- or 50-bps
cut. The 2-year note ended the week at 2.42%, the 10-year at 3.87% (40 bps
higher in two weeks), and the 30-year at 4.59% (29 bps higher in two weeks).
Munis continue to outperform Treasuries in a fairly quiet market. Primary new
issuance continues to be manageable and well received, and absolute yields
remain attractive on a relative basis. Liquidity has improved significantly,
although secondary Municipal trading shows the market still lacks full
efficiency. Investors continue to discredit most insurers and focus on
underlying credits. AMBAC announced a $1.66-billion loss for the first quarter
of 2008, sending its shares down 40% and raising more speculation about the
creditworthiness of its insurance. We expect the market to continue
consolidating as crossover buyers and retail continue to create sufficient
demand for Municipal paper, but a surge in supply from deal restructurings
could temporarily send ratios higher. The most recent ratings and outlook on
Bond Insurers by the Ratings Agencies are as follows:
High-grade, short-term, tax-exempt yields rose in response to the market’s
inflationary fears and an outflow of cash in money funds. The variable rate
market appears to be consolidating, but we expect further inconsistencies in
reset rates as investors react to AMBAC’s reported losses.
10-Day
Yield History of U.S. Treasuries and
Bond Buyer 40 Municipal bond Index |
| |
30yr |
10yr |
5yr |
2yr |
B.B. Index |
| April 25 |
4.592 |
3.872 |
3.181 |
2.419 |
4.95 |
| April 24 |
4.547 |
3.827 |
3.093 |
2.387 |
4.93 |
| April 23 |
4.492 |
3.733 |
2.957 |
2.193 |
4.88 |
| April 22 |
4.445 |
3.693 |
2.940 |
2.193 |
4.87 |
|
April 21 |
4.489 |
3.727 |
2.936 |
2.176 |
4.89 |
|
April 18 |
4.497 |
3.708 |
2.901 |
2.134 |
4.89 |
| April 17 |
4.527 |
3.729 |
2.890 |
2.107 |
4.86 |
| April 16 |
4.494 |
3.691 |
2.814 |
1.967 |
4.84 |
| April 15 |
4.442 |
3.602 |
2.688 |
1.868 |
4.82 |
| April 14 |
4.350 |
3.513 |
2.596 |
1.762 |
4.76 |
California Bonds currently trade at the following yields:
| |
30yr |
10yr |
5yr |
1yr |
| Cal Insured High
Grade (par coupon) |
4.75 |
3.79 |
3.06 |
2.00 |
| Cal Non-Rated |
6.25 |
5.25 |
4.50 |
3.50 |
Short Term Rates:
CA Exempt Weekly Variable Rates: 2.15%
Taxable Weekly Variable Rates: 2.83%
The information contained herein is based on sources that E. J. De
La Rosa & Co., Inc. (DLR) believes to be reliable, but it is neither
all-inclusive nor guaranteed by DLR, and it may be incomplete or condensed. The
information and opinions herein, if any, are subject to change without notice,
and DLR does not undertake to advise the reader of changes in opinion or
information. Some of the securities DLR follows may be unrated or below
investment-grade municipal bonds, or are high-yield corporate bonds, that
typically involve a higher degree of risk and more volatility than rated or
investment-grade municipal bonds, or investment grade corporate bonds.
Therefore, certain debt securities discussed in this update may be unsuitable
for some investors, depending on their specific investment objectives,
financial condition, and needs. This update is for informational purposes, and
under no circumstances is it to be construed as a recommendation, an offer, or
the solicitation of an offer to buy or sell any particular debt security. DLR
may make a market in or trade for its proprietary account the securities
discussed in this update. Also, DLR may have been a manager or co-manager of a
public offering of municipal bonds or other debt securities within the last
three years for issuers named herein. DLR or its managing partners, directors,
and employees individually, or their family members, may have either long or
short positions in the securities mentioned, and may purchase or sell these
securities from time to time in the open market or otherwise for their own
accounts or the accounts of others.
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