The municipal market was largely unchanged yesterday.
"I don't really see anything going on in munis, even with Treasuries off a bit," a trader in New York said. "It's one of those Monday dog days of summer."
The Treasury market showed little movement yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.93%, finished at 3.96%. The yield on the two-year note was quoted near the end of the session at 2.52% after opening at 2.49%. The yield on the 30-year Treasury finished at 4.58% after opening at 4.56%.
In economic data released yesterday, personal income increased 0.1% in June and personal consumption expenditures increased 0.6%. In May, personal income increased a revised 1.8% and PCE increased a revised 0.8%. Economists polled by IFR Markets had predicted a 0.2% dip in personal income and a 0.5% rise in PCE.
New factory orders for manufactured goods jumped 1.7% in June. The factory order increase, to $457.6 billion, was larger than the 0.7% increase projected by IFR and came after a revised 0.9% increase to $450.0 billion in May.
Excluding transportation, the level of all new manufacturing orders rose 2.3% to about $402.3 billion in June, following a 0.8% rise in May to $393.2 billion. The increase compared to a 1.7% increase projected by IFR.
This week, a slate of economic data will be released. Today, the July Institute for Supply Management non-manufacturing business activity composite index is due, followed Thursday by initial jobless claims for the week ended Aug. 2 and continuing jobless claims for the week ended July 26. Then on Friday, June wholesale inventories and sales will be released.
Economists polled by IFR Markets are predicting a 49.0 reading for the ISM non-manufacturing index, 430,000 initial claims, 3.225 million continuing claims, a 0.6% increase in wholesale inventories, and a 0.8% rise in wholesale sales.
Meanwhile, the Federal Open Market Committee will hold its monetary policy meeting today. The federal funds rate target currently stands at 2%.
"This week, the market again appears set for a positive tone as investors look to future rating trends," Matt Fabian, managing director at Municipal Market Advisors, wrote in a weekly report. "And, as in July, we expect August reinvestment lows will add to market strength as poor stock market returns dissuade individuals from steering coupon and principal payments out of tax-exempts."
"Looking at the data, the market's principal driver will be the FOMC, but with inflation inputs throughout the week, Treasuries may be volatile," he wrote. "Note that because recent arbitrage-related muni buying may have been in anticipation of a weaker Treasury market, on widely discussed supply and inflation vectors, tax-exempts could see unusual weakness should the data indicate more benign inflationary pressures."
Fabian also wrote that last week was a "tremendous news week for municipals."
"Not only did the U.S. Congress and Connecticut attorney general discuss potential new restrictions on how muni bonds are rated, but there was information on new lawsuits against auction-rate securities dealers and the bond insurers, a Fitch Ratings proposal to upgrade many or most municipal issuers, and Ambac Assurance Corp. andXL Capital Assurance Inc.'s [now Syncora Guarantee Inc.] commutation of [relief from] large CDO exposures," Fabian wrote.
"These many and confusing inputs - along with our sectors' perhaps growing illiquidity as participants struggle to evaluate credit and risk - helped restrain muni performance amid a moderate Treasury flight to quality rally," he wrote. "Indeed, muni intermediates remain in 'buy' territory in our risk indicator despite relatively strong, if inconsistent, demand from individuals and tender option bond programs for a value-priced primary market."
As the municipal market closes the books on July, which saw $30.51 billion of long-term volume, issuers in New York, California, and New Jersey will usher in August with three of this week's largest deals as part of an estimated $4.65 billion of new-issue volume - noticeably less than last week's revised $6.56 billion total, according to Thomson Reuters.
An $834 million New York City general obligation offering will jump-start the negotiated activity tomorrow, and will be the largest deal of the week, followed by a $717.8 million Bay Area Toll Authority revenue sale the same day. There are an estimated $3.69 billion in negotiated deals slated for this week, compared with a revised $5.39 billion last week.
The city's GO sale will be priced by JPMorgan after a three-day retail order period that ends today. On the first day of retail pricing Friday, the city sold $249 million to retail investors.
Bonds from the larger $800 million Series A mature from 2010 through 2029, with yields ranging from 2.25% with a 4% coupon in 2010 to 4.99% with a 4.875% coupon in 2029. Bonds maturing from 2024 through 2029 were not offered during the retail order period. Bonds from the smaller $33.5 million Series G mature from 2014 through 2026, with yields ranging from 3.57% with a 4% coupon in 2014 to 4.86% with a 4.75% coupon in 2026. All the bonds, which are callable at par in 2018, are rated Aa3 by Moody's Investors Service, AA by Standard & Poor's, and AA-minus by Fitch Ratings.
Meanwhile, California's BATA deal will be priced by Citi with a structure heavily weighted on the long end with bonds maturing from 2032 to 2048. The Series 2008 F-1 bonds, which are being sold on behalf of the San Francisco Bay Area Toll Bridge project, are expected to have ratings of Aa3 from Moody's, AA from Standard & Poor's, and AA-minus from Fitch.
Activity in the new-issue market was light yesterday.
