The municipal market was mostly unchanged yesterday amid fairly light trading activity.
“It’s a bit of a slow start,” a trader in New York said. “There should be pretty decent activity out there this week, though. There’s a lot of action out in the new-issue market this week, a lot of people will be focused on that. But for right now, we’re just pretty flat, with not a lot going on.”
“There is some business getting done, but we’re pretty flat,” a trader in Los Angeles said. “I’m not really seeing much movement in either direction.”
The Treasury market showed some gains yesterday. The yield on the benchmark 10-year note opened at 3.47% and finished at 3.43%. The yield on the two-year note opened at 0.83% and finished at 0.77%. The yield on the 30-year bond finished at 4.39% after opening at 4.40%.
Yesterday’s Municipal Market Data triple-A scale yielded 2.73% in 10 years and 3.63% in 20 years, following Friday’s levels of 2.73% and 3.65%. The scale yielded 4.18% in 30 years yesterday after Friday’s level of 4.18%.
As of Friday’s close, the triple-A muni scale in 10 years was at 78.4% of comparable Treasuries, according to MMD, while 30-year munis were 95.0% of comparable Treasuries and 30-year tax-exempt triple-A general obligation bonds were at 98.4% of the comparable London Interbank Offered Rate.
Approximately $10.1 billion of new-issue supply is expected in the primary market this week after a revised $3.4 billion last week, according to data from Thomson Reuters and Ipreo LLC.
A $616.1 million BAB sale from New York City on Thursday, a $500 million offering of BABs by the Massachusetts School Building Authority later this week, and a $600 million District of Columbia BAB deal tomorrow punctuate the already impressive 689 BAB issues worth $57.74 billion that have barraged the market for the year to date through Thursday, according to Thomson Reuters.
In November alone, there were 100 BAB issues sold totaling $7.57 billion. But as issuers, bankers, and underwriters prepare to close the books on 2009, that could mean fewer large BAB deals will be available before the holiday period puts a seasonal halt to issuance until the new year.
JPMorgan will price the New York City bonds on Thursday with a final 2038 maturity and ratings of Aa3 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-minus by Fitch Ratings. JPMorgan is also the senior book-runner on the District of Columbia BABs, which are expected to have one term bond structured in 2034 and are rated Aa2 by Moody’s, AAA by Standard & Poor’s, and AA by Fitch.
Samuel A. Ramirez & Co. will price the Massachusetts deal either tomorrow or Thursday.
The larger series consists of $500 million of direct-pay BABs, while an additional $100 million of tax-exempt debt will also be priced. Both series are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s.
The BAB deal is one of three bond issues expected from New York City this week. On Thursday the city also plans to enter the competitive market, where it will issue $83.8 million of traditional taxable GOs that mature from 2011 to 2015.
In addition, tomorrow Citi will price $700 million of New York City GO debt — albeit tax-exempt — following a three-day retail order period that began last Friday.
The bonds are slated to mature serially from 2010 to 2026, and are rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch.
In the new-issue market yesterday, New Jersey competitively sold $325 million of tax and revenue anticipation notes to JPMorgan with an effective rate of 0.25%.
The Trans were structured with a 2.5% coupon. The credit is rated MIG-1 by Moody’s and SP-1-plus by Standard & Poor’s.
Jefferies & Co. priced $128.4 million of bonds for Harris County, Tex., in two series.
Unlimited-tax road refunding bonds from the $100 million Series A mature in 2010, 2012, 2013, and from 2015 through 2023. Yields range from 0.95% with a 5% coupon in 2012 to 3.46% with a 5% coupon in 2023. Bonds maturing in 2010 were not formally re-offered. These bonds are callable at par in 2019.
Tax subordinate-lien revenue refunding bonds from the $28.4 million Series C mature from 2014 through 2023, with yields ranging from 1.58% with a 4% coupon in 2014 to 3.46% with a 5% coupon in 2023. The bonds are callable at par in 2019.
The credit is rated AAA by Standard & Poor’s and AA-plus by Fitch.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that “last week’s municipal market was absorbed in its year-end rally and ignored weakness in taxables.”
“This appears to be largely an institutional-driven rally, implying that at some point, lower-rated paper may begin to follow high grades to stronger prices, creating some risk — as in October — of overreach,” Fabian wrote.
“Still, year-end dynamics are different than quarter-end, and, with the looming January reinvestment, a more profitable than typical maturity roll down — because of the very steep early yield curve — good prospects for institutional risk taking on Jan. 1, and a juggernaut in BAB-extension/expansion momentum, the downside is reasonably limited as well.”
“This week, the new-issue calendar is very large before things wind down for the holidays, and there is no reason to assume tax-exempts will begin following Treasuries to higher yields now,” Fabian wrote. “We may also begin to receive better hot money demand from crossovers looking for gains, amplifying any rally.”
The economic calendar was light yesterday.
