The municipal market was largely unchanged yesterday in light secondary market trading activity."It's fairly quiet out there," a trader in New York said. "There's not a whole lot going on. Not a lot trading, not a lot of movement. I'd say we're fairly unchanged right now."
"I'm not really seeing any direction here, just totally flat," a trader in Los Angeles said. "I expect activity to pick up as the week moves forward, but only to a certain degree, because it is August. As for today, though, there's not a whole lot to talk about. Not a lot trading, pretty unchanged."
The Treasury market showed gains yesterday. The yield on the benchmark 10-year note, which opened at 3.85%, was quoted near the end of the session at 3.78%. The yield on the two-year note was quoted near the end of the session at 1.25% after opening at 1.30%. The yield on the 30-year bond, which opened at 4.61%, was quoted near the end of the session at 4.54%.
As of Friday's close, the triple-A muni scale in 10 years was at 77.2% of comparable Treasuries, according to Municipal Market Data. Thirty-year munis were 101.1% of comparable Treasuries. As of Friday's close, 30-year tax-exempt triple-A general obligation bonds were at 102.4% of the comparable London Interbank Offered Rate.
Even with the municipal market in a summer doldrums mode, investors should be eager to sink their teeth into meaty new issues on the primary market calendar this week. The slate is led by an $810 million Ohio hospital financing in the negotiated market and a $600 million Minnesota general obligation offering on the competitive side.
According to Ipreo LLC and The Bond Buyer, an estimated $9.56 billion in total volume is expected to be priced this week, nearly double the revised $4.55 billion that came to market last week, according to Thomson Reuters.
This week, an $810.3 million hospital deal from the Ohio Higher Educational Facilities Commission on behalf of the Cleveland Clinic Health System will kick off the brisk activity in the negotiated market this week when it is priced by JPMorgan today after a retail order period yesterday.
The deal's two parts consist of $309.5 million of Series 2009A revenue refunding bonds structured as one bullet maturity due in 2039, and $500.8 million of Series 2009B new-money bonds maturing serially from 2011 to 2029 with terms in 2034 and 2039.
The Series A bonds were not offered during yesterday's retail order period, but the Series B bonds contain yields ranging from 1.88% with a 3% coupon in 2011 to 5.60% with a 5.5% coupon in 2034.
Bonds maturing from 2020 through 2023, from 2025 through 2028, and in 2039 were not offered during the retail order period. The bonds carry ratings of Aa2 from Moody's Investors Service and AA-minus from Standard & Poor's.
California's Bay Area Toll Authority is planning to issue $773.3 million of toll bridge revenue debt when Merrill, Lynch & Co. prices the offering tomorrow after a retail order period today with a structure that consists of serial bonds maturing from 2020 to 2039.
Minnesota's $600 million new-money and refunding GO sale will be sold in the competitive market today in four series, the largest of which is Series F, consisting of $299.2 million of various-purpose refunding bonds maturing from 2010 to 2021.
Series D totals $192.2 million and consists of GO various-purpose bonds maturing from 2010 to 2029, while Series E, $80 million of highway GO bonds, matures from 2010 to 2029. Series G, totals $28.5 million and will consist of GO highway refunding bonds maturing from 2011 to 2021.
The Minnesota bonds are rated Aa1 by Moody's, and have natural AAA ratings from both Standard & Poor's and Fitch Ratings.
Activity in the new-issue market was light yesterday.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that "although the municipal market retains strong internal factors that should keep high-grade paper well bid, the potential for large incremental losses in the Treasury market should be taken seriously."
"These internal factors entail a scarcity of high-grade paper, largely due to the lack of credible or highly rated bond insurance, a plethora of high grade buyers - like individuals, banks, mutual fund tender option bond programs, and crossover buyers - favorable seasonals, and the attractiveness of even slightly higher nominal yields," he wrote.
"Still, positions dependent on longer maturity performance are growing more speculative. To this point, credit pressures are being felt most severely by risky-sector issuers like land speculation districts, nursing homes, and multifamily housing projects; however, at some point, even safe sector credits may begin to threaten temporary or permanent nonpayment."
Morgan Stanley Smith Barney muni strategist George Friedlander wrote in his weekly report that the muni market last week "once again ... had a fairly heavy week in issuance of Build America Bonds, even though the spread over Treasuries appears to have stalled as we noted last week."
"We expect these spreads to drop a bit more for one simple reason: the high-grade corporate bond market continues to rally vs. Treasuries," he wrote. "Spreads have continued to drop sharply, down roughly half from the December peak, and down 50 to 60 basis points since July 1. We expect that this pattern, in turn, should spur demand for BABs, whose spreads have not followed corporate spreads lower, as yet.
"Even without significantly lower spreads, issuance has been vigorous, with roughly $1.5 billion of BABs in issues $100 million or larger selling, and a handful of smaller deals also getting done. If spreads do follow corporate spreads lower, issuance as a proportion of total muni supply could move higher still."
The economic calendar was light yesterday.
