The municipal market finished slightly weaker yesterday, following Treasuries, as secondary market trading activity remained light."We're a little weaker," a trader in New York said. "There's some pressure from Treasury yields rising, and we're down a little I guess in sympathy. But we're definitely cheapening up a little bit, probably two or three basis points in some spots, closer to one or two [basis points] weaker overall. But it's quiet."
"It's fairly quiet, but there's certainly a weaker tone out there," a trader in Los Angeles said. "We're probably down a basis point on the whole, maybe two basis points here and there, but I'd say closer to one than two."
The Treasury market showed losses yesterday. The yield on the benchmark 10-year note, which opened at 3.66%, was quoted near the end of the session at 3.72%. The yield on the two-year note was quoted near the end of the session at 1.04% after opening at 0.99%. The yield on the 30-year bond, which opened at 4.54%, was quoted near the end of the session at 4.62%.
As of Friday's close, the triple-A muni scale in 10 years was at 81.7% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 103.3% of comparable Treasuries. As of the close Friday, 30-year tax-exempt triple-A general obligation bonds were at 108.5% of the comparable London Interbank Offered Rate.
Issuers in Texas and California will dominate the primary calendar this week - bringing a fresh supply of taxable Build America Bonds to the new-issue market - as the end of July marks the arrival of an estimated $5.91 billion of total competitive and negotiated volume, according to Ipreo LLC and The Bond Buyer.
This week's volume is nearly double the supply of last week when a revised $3.10 billion of new deals sold, according to Thomson Reuters. The increase in planned issuance comes as investors continued the year's trend and put nearly $1 billion of cash into municipal bond mutual funds last week.
This week, two separate bond issues from Houston - one of which includes BABs - and a sizable Texas water deal will turn investors' attention to the Lone Star State. The larger Houston sale is a two-pronged offering of public improvement refunding bonds totaling $490 million, a portion of which consists of BABs.
Loop Capital Markets is expected to price the deal tomorrow with a structure that includes $415 million of Series 2009A new-money and refunding bonds maturing serially from 2010 to 2027, and $75 million of Series 2009B direct-pay BABs maturing in 2029.
On the same day, Houston is also planning to sell $420 million of airport system senior-lien revenue and refunding bonds in a separate tax-exempt offering being priced by book-runner JPMorgan. That deal, which is structured with a final 2039 term bond, is expected to carry ratings of Aa3 from Moody's Investors Service and AA-minus from Standard & Poor's.
Aside from the Texas offerings, the single largest deal of the week is expected to be a $568.7 million Indianapolis Local Public Improvement Bond Bank refinancing for the city's waterworks project scheduled for pricing tomorrow.
In the new-issue market yesterday, Barclays Capital priced $250 million of sewer revenue bonds for King County, Wash. The bonds mature from 2013 through 2034, with term bonds in 2039 and 2042. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's and AA-plus by Standard & Poor's.
JPMorgan also priced for retail investors $202.7 million of state revolving fund revenue bonds for the Massachusetts Water Pollution Abatement Trust. The bonds mature from 2010 through 2029, with yields ranging from 0.76% with a 3% coupon in 2011 to 4.26% with a 4.2% coupon in 2029. The bonds, which are callable at par in 2019, are rated triple-A by all three major ratings agencies.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: "The municipal market was unable to follow the drama in Treasuries last week, finishing with yields mostly unchanged.
"However, recently wider spreads - and, perhaps more importantly, a better sense that the Fed will be encouraging new borrowing with low rates for some time - have clustered buyers at earlier maturities," he added. "Also supporting this trend is ongoing demand from individuals seeking relief from likely tax increases and stock market volatility; mutual funds bolstering their own financial flexibility; a relative cheapness in this segment of the curve since early June; and broadening fears of rating and/or credit problems among local issuers. Many of these points may remain intact in at least the near term, most notably the last."
Also, in a weekly report, Morgan Stanley Smith Barney muni strategist George Friedlander wrote: "Neither rain, nor storm, nor higher Treasury yields nor negative budgetary publicity appears to have the potential to throw the muni market off its tracks."
"While longer-maturity, high-grade yields have increased modestly over the past two weeks, they have done so to a far less degree than Treasury yields, and indeed, shorter intermediates continued to rally in the face of Treasury market weakness," he wrote.
In economic data released yesterday, sales of new single-family homes increased 11.0% to 384,000 in June. The June figure came after an upwardly revised 2.4% climb to a 346,000 rate in May. Thomson Reuters' poll of economists had predicted a 360,000 sales level for June.
