The municipal market was unchanged to slightly weaker yesterday.
"There is nothing going on," a trader in New York said. "The market might be off a little bit just based on what Treasuries are doing, but other than that, there's not a whole lot happening. We're pretty much just picking up right where we left off Friday. It's a quiet Monday."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. Bonds from an interdealer trade of Ohio's Buckeye Tobacco Settlement Financing Authority 6.5s of 2047 yielded 7.44%, one basis point higher than where they traded Friday. A dealer sold to a customer insured Los Angeles Unified School District 4.75s of 2027 at 4.92%, two basis points higher than where they were sold Friday. A dealer sold to a customer New York City 4.875s of 2029 at 5.03%, up two basis points from where they traded Friday. Bonds from an interdealer trade of California's Bay Area Toll Authority 5s of 2034 yielded 4.99%, up one basis point from where they traded Friday.
The Treasury market showed losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.93%, finished at 4.00%. The yield on the two-year note was quoted near the end of the session at 2.55% after opening at 2.50%. The yield on the 30-year Treasury was quoted near the end of the session at 4.61% after opening at 4.53%.
The economic calendar was light yesterday. However, later this week, a slate of economic data will be released, beginning today, when July import prices, July retail sales, and June business inventories and sales will be released. On Thursday, the July consumer price index, initial jobless claims for the week ended Aug. 9, and continuing jobless claims for the week ended Aug. 2 will be released, followed Friday by July industrial production, July capacity utilization, and the preliminary August University of Michigan consumer sentiment index.
Economists polled by IFR Markets are predicting a 1.0% rise in import prices, no change in retail sales, a 0.5% uptick in retail sales excluding autos, a 0.5% climb in business inventories, a 1.7% increase in business sales, a 0.4% rise in CPI, a 0.2% climb in CPI core, 440,000 initial jobless claims, 3.300 million continuing jobless claims, no change in industrial production, 79.8% capacity utilization, and a 62.0 Michigan sentiment index.
In a weekly report, George Friedlander, managing director and fixed-income strategist at Citi, wrote: "With at least three major firms reaching agreements to buy back auction-rate securities from specified classes of customers, including virtually all retail customers, the muni market is going be hit with large pools of new cash at the times specified in the agreements."
"Our suspicion is that this will put short-term muni yields under strong downward pressure, but only temporarily," he wrote. "If tax-exempt money market fund yields remain unacceptably low, a portion of investors in this 'space' will likely look elsewhere, including taxable instruments, short-maturity fixed-rate munis, and in some cases farther out along the muni yield curve."
Friedlander also wrote that the volatility in Treasuries and stocks "continues to spill over to the other market sectors."
"In our view, munis are cheap enough to withstand some upward pressure on Treasury yields and follow to a degree if Treasury yields move lower," he wrote. "That said, these are the 'dog days' when investors tend to be harder to find. So, any major new economic or market event could cause enhanced volatility in munis as well."
The summer doldrums figure in the municipal market this week as new-issue volume dips to $3.96 billion from $5.21 billion last week, according to Thomson Reuters, and a $326.9 million District of Columbia general obligation offering takes the lead as the largest deal on the negotiated calendar.
By comparison, last week, the market kicked off August with an $800 million New York City GO offering and a $717.8 million BATA revenue sale.
The city deal had a final maturity in 2029 with a 4.87% coupon priced to yield 5.03% - 10 basis points cheaper than the generic, Municipal Market Data triple-A-rated GO scale in 2029 which yielded 4.93% at the time. The BATA deal, meanwhile, had a 2047 final maturity with a 5.12% coupon priced to yield 5.33%.
This week's Washington, D.C., Series 2008E bonds are expected to be priced by Merrill Lynch & Co. today with a structure that includes bonds maturing from 2009 to 2033. The bonds are expected to be rated A1 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch Ratings.
The deal represents the second half of the city's planned fiscal 2008 GO issuance, and will finance various capital projects.
The district will also sell $151.4 million of Series 2008 F GO refunding bonds today in a separate negotiated deal being priced by Siebert Brandford Shank & Co. The current refunding, whose structure includes bonds maturing from 2009 to 2025, is interest-rate sensitive and will retire bonds originally issued in 1998.
In the new-issue market yesterday, First Southwest Co. priced $97.5 million of unlimited tax school building bonds for Texas' Eagle Mountain-Saginaw Independent School District in two series. Bonds from the larger $95.9 million series mature from 2009 through 2028 with term bonds in 2030, 2033, 2038, 2043, and 2048. Yields range from 2.26% with a 3.25% coupon in 2010 to 5.20% with a 5% coupon in 2043. Bonds maturing in 2009 will be decided via sealed bid. Bonds maturing in 2048 were not formally re-offered. The bonds, which are callable at par in 2018, are backed by the Permanent School Fund guarantee program. The underlying credit is rated AA-minus by Standard & Poor's and A-plus by Fitch.
Also, RBC Capital Markets priced $31 million of single-family program bonds for the Montana Board of Housing. The bonds mature from 2010 through 2019, with term bonds in 2024, 2029, and 2039. Yields range from 2.65% in 2010 to 5.50% in 2039, all priced at par. The bonds, which are callable at par in 2018, are rated Aa1 by Moody's and AA-plus by Standard & Poor's.
