The municipal market finished the week on a quiet note Friday, closing after showing little movement on the day.“It was really just a quiet, summer Friday,” a trader in Texas said. “We saw a little bit of buying, a decent amount of customer bid-wanteds, but not overwhelming. I’d call it unchanged.”
A total of 41,116 trades with a par value of $11.3 billion were reported to the Municipal Securities Rulemaking Board Friday, according to Thomson Reuters.
That was down from $16.7 billion reported Thursday and just ahead of the $11.1 billion reported last Friday, according to the MSRB.
Traders said that lower-rated credits may have seen some selling pressure. In addition, Moody’s Investors Service’s decision to put California’s A2 general obligation rating on review for downgrade may have put some pressure on the credit, traders said.
“That caused some indigestion and some selling pressure in Cal,” a trader in San Francisco said. “There’s a reticence to participate in California from players that were traditionally involved in California. All of it stems from the state problems and the rapidly declining revenue stream to local issuers.”
The new-issue market was light on Friday following a revised total of $6.912 billion in new issues coming to market during the week, according to The Bond Buyer and Ipreo LLC. A total of $7.856 billion of combined negotiated and competitive deals are scheduled for next week.
The traditional heavy issuance in June and July could create more volatility in the market this year without the presence of hedge funds and tender-option bond programs that had helped put away supply in recent years, Janney Montgomery Scott LLC fixed-income strategist Guy LeBas said in a note to clients earlier this week.
The Treasury market showed gains Friday. The yield on the benchmark 10-year note, which opened at 3.83%, was quoted late Friday at 3.44%. The yield on the two-year note was quoted late Friday at 1.20% after opening at 1.25%. The yield on the 30-year bond, which opened at 4.61%, was quoted late Friday at 4.51%.
The ratio between Treasuries and municipals has narrowed significantly after exploding amid the credit crisis and a dramatic flight-to-safety. The ratio between a triple-A, 30-year GO and a 30-year Treasury sat at 102.17% after trading yesterday, compared to 179.72% to start the year, according to Municipal Market Data. The ration between a triple-A, 10-year GO and a 10-year Treasury has fallen to 87.14% from 146.47% to start the year.
The yield on a triple-A, 30-year GO credit has fallen to 4.70% from 5.05% in that time period, while the yield on a triple-A, 10-year GO has fallen to 3.32% from 3.53%.
The economic calendar was light Friday. This week, the calendar will feature May durable goods data on Wednesday, final first-quarter gross domestic product numbers Thursday, and final June University of Michigan consumer confidence numbers on Friday.
The Federal Reserve’s Federal Open Market Committee will also hold a two-day meeting, beginning Tuesday, to set its interest rate policy. The market consensus is that the FOMC will leave the target range for the federal funds rate untouched at a rate of between zero and 0.25%.
