Weekly Market Update: August 26, 2010

Medium/Long-term Rates: For the period ending August 26, the BBI-20 decreased 15 bp to 3.88%. The 20-year AAA MMD decreased 12 bp to 3.30%. The 10-year Treasury decreased 8 bp to 2.50% and the 30-year Treasury decreased 13 bp to 3.53%.

Short-term Rates: The SIFMA Index reset at 0.30%, unchanged from August 19. The 1-month LIBOR Index reset at 0.26%, a 1 bp decrease from one week ago. The spread between the 1-month Treasury and 1-month LIBOR decreased 2 bp to 9 bp for the week.

Commentary: Municipal prices continued to set historic highs last week as the 10-year AAA fell to 2.17% and the 30-year AAA fell to 3.67%, according to Municipal Market Data (MMD). As of the August 26 close, the MMD 10-year AAA has not had a losing day since August 2nd; the 30-year has not lost ground since June 15th. With even less primary market issuance scheduled for this week than last, the supply/demand imbalance in tax-exempt markets is likely to persist in the near-term.

Treasury prices also climbed higher last week as two dismal readings from the housing sector, as well as an anemic U.S. durable goods report, underscored weakness in the U.S. economy. At week’s end, the 10-year Municipal to Treasury yield declined 2 bp to 87% while the 30-year ratio climbed 1 bp higher to 104%. Yields on the 10- and 30-year Treasuries have not been this low since January and April 2009, respectively.

The Bond Buyer 30-day visible supply includes $5.462 billion in negotiated sales and $1.428 billion in competitive sales. Monday morning brings a new read on July personal income and outlays. The Conference Board’s August Consumer Confidence survey will be released Tuesday. On Wednesday, the Institute for Supply Management releases its monthly manufacturing composite index. Pending Home Sales data for July is due out Thursday and on Friday the Bureau of Labor Statistics will provide its Employment Situation report for the month of August.

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