The tax-exempt market was slightly weaker yesterday, in light trading, as participants eased their way back in from a three-day holiday weekend, and an issuer in Kentucky competitively sold $41 million of taxable Build America Bonds in a largely inactive new-issue market."It's still fairly quiet, but we're cheapening up some," a trader in New York said. "We're probably down a good two or three basis points, maybe even a little more on the long end, but there's not too much trading going on."
"People are still kind of making their way back from the long weekend, so there wasn't a whole lot of activity, but it was clearly down a bit," a trader in Los Angeles said. "I'd say it was a solid three basis points weaker."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. A dealer sold to a customer New Jersey Turnpike Authority BABs, 7.41s of 2040 at 6.74%, up two basis points from where they traded Friday. Bonds from an interdealer trade of California 5.25s of 2030 yielded 5.38%, three basis points higher than where they were sold Friday. Bonds from an interdealer trade of Illinois 5s of 2033 yielded 5.06%, up three basis points from where they traded Friday. Bonds from an interdealer trade of Miami 5.125s of 2026 yielded 5.22%, up three basis points from where they traded Friday. A dealer sold to a customer insured Washington 5s of 2022 at 3.48%, one basis point higher than where they were sold Friday.
The Treasury market was weaker yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.45%, was quoted near the end of the session at 3.54%. The yield on the two-year note was quoted near the end of the session at 0.93%, after opening at 0.88%. And the yield on the 30-year bond, which opened at 4.38%, was quoted near the end of the session at 4.48%.
As of Friday's close, the triple-A muni scale in 10 years was at 80.9% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 99.8% of comparable Treasuries. Also, as of the close Friday, 30-year tax-exempt triple-A rated general obligation bonds were at 108.1% of the comparable London Interbank Offered Rate.
An estimated $3.72 billion of new issuance is expected to be priced during a trading week shortened by the Memorial Day holiday, according to Ipreo LLC and The Bond Buyer. By comparison, last week the municipal market welcomed a revised $5.80 billion of competitive and negotiated volume, according to Thomson Reuters.
This week, the primary market will be led by a $425.6 million New York State Thruway Authority sale of state personal income tax revenue bonds for transportation purposes. The deal is slated to be priced today by RBC Capital Markets. The credit is rated triple-A by Standard & Poor's and AA-minus by Fitch Ratings.
Also, the New Jersey Transportation Trust Fund Authority will come to market tomorrow with a $350 million sale of BABs, to be priced by Merrill Lynch & Co. The bonds are rated A1 by Moody's Investors Service, AA-minus by Standard & Poor's, and A-plus by Fitch.
In the new-issue market yesterday, Kentucky's Fayette County School District competitively sold $41.2 million of taxable school building revenue taxable BABs to Morgan Keegan & Co., with a net interest cost of 5.19%. The bonds mature from 2010 through 2029, with yields ranging from 2.72% with a 2.9% coupon in 2013 to 5.68% with a 5.25% coupon in 2027. Bonds maturing from 2010 through 2012, in 2021, 2024, 2028, and 2029 were not formally re-offered. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's and AA by Standard & Poor's.
California's Berkeley Unified School District competitively sold $17.8 million of GOs to UBS Financial Services, with a TIC of 4.75%. The bonds mature from 2014 through 2029, with term bonds in 2031 and 2033. Coupons range from 3.5% in 2014 to 5% in 2033. None of the bonds were formally re-offered. The bonds, which are callable at par in 2019, are insured by Assured Guaranty Corp.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: "Despite sharp weakness in Treasuries on both supply and sovereign credit fears, municipal bonds remained positive last week."
"Current buyers appear confident ahead of the expected June and July reinvestment surge, the alleviation of longer-term tax-exempt supply via taxable Build America Bond issuance, likely income tax rate increases, and very strong mutual fund inflows," Fabian wrote. "Indeed, tax-exempts have greatly outperformed taxable benchmarks and are approaching pre-crisis measures of relative value.
"Thus, while municipal participants will ultimately have to reconcile their divergent opinion of tax-exempt prospects with those of the Treasury market - after all, a downgrade of the U.S. Treasury would reasonably imply simultaneous downgrades to the large majority of municipal securities - in the near term, there should be enough demand to rebuff more than modest concerns over municipal spreads," he wrote.
In economic data released yesterday, the consumer confidence index, which showed considerable improvement in April, posted another large gain in May, jumping to 54.9 from an upwardly revised 40.8 last month. Economists polled by Thomson Reuters predicted the index would rise to 42.0.
