Municipals opened on a steady to firmer tone while U.S. Treasuries were slightly weaker on lower jobless claims and equities rose on better earnings reports.
The short end of the market is at record lows. Bloomberg BVAL now has the two-year at 0.03% and the one-year is at 0.04%. Refinitiv MMD has the one and two-year at 0.05%. ICE Data Services sees the one- and two-year at 0.04%.
Early trades showed North Carolina 5s of 2022 at 0.036%. Maryland 5s of 2024 at 0.09%.
"Short maturities have caught a bid but there is almost no room left to move further," said Kim Olsan, senior vice president at FHN Financial.
She noted the 2- to 5-year range shows "eye-popping levels — local AA GOs due in 2023 are trading below 0.05%, or less than 25% relative value to the 2-year UST (the annual average is 88%)," Olsan said.
Similar flows are occurring in new issues where commitments past the money market range are holding rates to such extreme lows, she said.
"The result may be a function of limited money-market product as note sales this year so far have totaled just $16.8 billion vs. $26.5 billion in the same period last year (issuers have more reserve balances to draw on)," Olsan said.
Tax-exempt municipal money market fund assets fell by $338 million, lowering their total to $91.57 billion for the week ending August 3.
"Tax-exempt money funds have reached a 10-year low of just $91.6 billion. These flows have caused the long end of the curve to cede some volume to maturities inside 7 years, where nearly one-third of trades have occurred in the last week."
"Based on the real rate range, there is still value in an extension trade, especially where the first 1% yield hits and just past 20 years where about 90% of the full yield capture can be found," she said.
Olsan pointed to the summer of 2014, when short rates traded below 0.20% but the curve slope was 300 basis points — "much more rewarding in absolute yield terms."
Initial jobless claims fell to 385,000 in the week ended July 31, on a seasonally adjusted basis, from a downwardly revised 399,000 the week before, first reported as 400,000 claims.
Economists polled by IFR Markets estimated 380,000 claims in the week.
Continuing claims decreased to 2.930 million in the week ended July 24, from an upwardly revised 3.296 million in the prior week, initially reported as 3.269 million.
This marks the lowest level of continuing claims since it was at 1.770 million the week of March 14, 2020.
IFR anticipated 3.283 million claims in the week.
“New jobless claims dropped a bit back below the seasonally adjusted 400,000 level, in line with expectations, but remain in territory where they’ve been in recent months,” said Mark Hamrick, senior economic analyst at Bankrate. "They slipped below the benchmark 400,000 level for the first time since the pandemic began around Memorial Day and have essentially hovered there since."
Also released Thursday, the international trade balance widened to $75.7 billion in June from $71.0 billion in May. Economists expected a $73.9 billion shortfall.
In the primary Thursday, Clifton, New Jersey, Board of Education sells $168.282 million of general obligation unlimited tax school bonds at 11 a.m. eastern.
The Arizona Industrial Development Authority (A1/A//A+) is set to price on Thursday $151.995 million of Phoenix Children’s Hospital forward delivery bonds. BofA Securities.
The Temple College District, Texas, (/AA-//) is set to price $110.33 million of limited tax bonds. Piper Sandler & Co.
