The municipal market was mostly unchanged yesterday, amid light trading activity.
"We're pretty much unchanged at this point," a trader in New York said. "There's not a whole lot going on. Things are pretty quiet out there, heading into the holidays."
"We're fairly quiet," a trader in Los Angeles said. "With the short week and the holidays coming up, there probably won't be much going on for a while. There just aren't a whole lot of people involved in the market, and there's not much liquidity out there. We're just flat."
The Treasury market showed losses yesterday. The yield on the benchmark 10-year note opened at 3.53% and finished at 3.69%. The yield on the two-year note opened at 0.79% and finished at 0.87%. The yield on the 30-year bond finished at 4.57%, after opening at 4.45%.
Yesterday's Municipal Market Data triple-A scale yielded 2.88% in 10 years and 3.62% in 20 years, matching levels of 2.88% and 3.62%, respectively, Friday. The scale yielded 4.10% in 30 years yesterday, matching Friday's level of 4.10%.
As of Friday's close, the triple-A muni scale in 10 years was at 82.1% of comparable Treasuries, according to MMD, while 30-year munis were 92.8% of comparable Treasuries. Also, as of Friday's close, 30-year tax-exempt triple-A rated general obligation bonds were at 96.0% of the comparable London Interbank Offered Rate.
Even as the approaching holidays are expected to put a seasonal damper on primary market supply, New York's Liberty Development Corp. plans to begin marketing $2.59 billion of escrow bonds today to meet a year-end deadline to sell Liberty bonds for redevelopment of the World Trade Center site.
The large offering brings estimated volume this week to $2.82 billion, according to Ipreo LLC and The Bond Buyer. Last week, issuers brought more than $4.32 billion of bonds to market, according to Thomson Reuters.
The Liberty Development Corp. bonds will be marketed to institutional investors in two series. A retail order period is not planned. Goldman, Sachs & Co. is underwriting the bonds.
The bulk of the issue, $2.58 billion, will be offered today as Series 2009A term-rate bonds and the proceeds will be invested in Treasuries. The bonds will be sold initially as a term bond with a 2049 maturity, subject to mandatory tender. The proceeds will be used to purchase Treasury State and Local Government Time Deposit Certificates of Indebtedness or other Treasury certificates sufficient to pay interest on the bonds due July 1, 2010.
They will also purchase Treasury State and Local Government One-Day Certificates of Indebtedness Demand Deposit securities sufficient to pay principal and interest on the bonds during a mandatory tender period from Oct. 12, 2010, to Jan. 11, 2011.
Fitch Ratings assigned its AAA/F1-plus rating to the bonds, citing the legal structure and security of Treasuries. Moody's Investors Service rates the bonds Aaa.
The Series 2009B bonds will be marketed as variable-rate bonds at a par of $12.5 million, subject to change, on Dec. 29 and will be backed by an irrevocable direct-pay letter of credit from JPMorgan Chase Bank NA.
The Series B bond proceeds will be deposited into a capitalized interest account. Fitch rates the bonds AA-minus/F1-plus based on the LOC. Moody's rates them Aa1/VMIG1.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: "Last year, the municipal market ended on two exceptionally strong weeks as mutual funds and account managers began buying bonds for the first time since the trauma of the preceding three months."
"With only a few interruptions, that buying continued throughout 2009, even into last week," Fabian wrote. "A repeat in the next two weeks is unlikely as high-grade yields remain very low and credit spreads — although wider recently — are at reasonable levels."
"Looking ahead into 2010, prospects remain favorable as we move closer to President Obama's planned income tax rate hikes in 2011; as the Build America Bond program is likely to become a permanent fixture in our market, regularly removing 20% or more of longer-dated supply; and as more issuers restructure their VRDOs into fixed-rate debt, keeping downward pressure on short-term rates and chasing more investors out of money funds into mutual funds or ETFs," he said.
"Once Treasury and taxable yields begin to rise, these supports are likely to muffle the impact on tax-exempts, meaning strong municipal outperformance, in particular at long-dated positions," Fabian wrote. "The front of the yield curve appears more vulnerable to an unwind of monetary accommodation."
In another weekly report, George Friedlander, muni strategist at Morgan Stanley Smith Barney, wrote: "Munis in roughly the seven- to 15-year range still make sense, despite the likelihood of rising Treasury yields during 2010 and muni yields as a percentage of Treasury yields that are not high by historical standards."
He wrote that the reason for this is that he expects munis to continue to outperform Treasuries, for a "number of reasons."
Those reasons include "a continuing shortage of long-term munis as BABs absorb at least $100 billion of potential supply, mostly on the long end … the likelihood that the Fed will raise short-term rates slowly and modestly in a slowly growing economy … the virtually inevitable increase in maximum marginal tax rates in the top two brackets to 35% and 39.6%, and possibly higher … and massive cash still on the sidelines, that will continually be reinvested out along the curve," Friedlander wrote.
Trades reported by the Municipal Securities Rulemaking Board yesterday showed little movement. A dealer sold to a customer insured Atlanta 5.75s of 2025 at 2.15%, even with where they traded Friday. A dealer bought from a customer Puerto Rico 5.75s of 2037 at 5.25%, even with where they traded Friday.
A dealer sold to a customer taxable Pensacola, Fla., BAB 7.21s of 2040 at 7.26%, even with where they were sold Friday. Bonds from an interdealer trade of California 5s of 2037 yielded 5.35%, even with where they traded Friday.
Activity in the new-issue market was light yesterday.
The economic calendar was light.
