The municipal market was unchanged to slightly weaker yesterday as participants returned following a three-day holiday weekend.
“There’s some weakness out there,” a trader in New York said. “I’m not seeing a ton of activity, but there’s a bit of a weaker tone. We’re probably down about two basis points or so, in spots. But not a ton of movement.”
“We’re somewhat weaker,” a trader in Los Angeles said. “We’re cheapening up just a little bit. Maybe a basis point or two. But it’s reasonably quiet.”
The Treasury market showed some losses yesterday. The yield on the benchmark 10-year note opened at 3.67% and was quoted near the end of the session at 3.70%.
The yield on the two-year note opened at 0.87% and was quoted near the end of the session at 0.90%. The yield on the 30-year bond was quoted near the end of the session at 4.59% after opening at 4.57%.
Yesterday’s Municipal Market Data triple-A scale yielded 3.04% in 10 years and 3.76% in 20 years, compared to levels of 3.03% and 3.76%, respectively, Friday. The scale yielded 4.08% in 30 years yesterday, matching Friday’s level.
As of Friday’s close, the triple-A muni scale in 10 years was at 82.3% of comparable Treasuries and 30-year munis were 89.1% of comparable Treasuries, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 91.9% of the comparable London Interbank Offered Rate.
This week’s largest financings include deals in the health care, transportation, and environmental sectors that are expected to price as part of an estimated $5.44 billion in volume, according to Ipreo LLC and The Bond Buyer.
Last week, the market saw a revised $7.41 billion in total new competitive and negotiated deals price, according to Thomson Reuters.
Clark County, Nev., will market a two-pronged airport financing totaling $800 million on behalf of McCarran International Airport in what will be this week’s largest negotiated sale.
Citi is expected to price the debt tomorrow, following a retail order period scheduled for today.
The larger portion of the deal consists of $450 million of senior-lien passenger facility charge revenue bonds, and another $350 million of subordinate-lien airport system revenue bonds.
Both portions are rated Aa3 by Moody’s Investors Service and A-plus by Standard & Poor’s. The deal includes all new-money tax-exempt bonds.
In the health care sector, the Hall County and Gainesville, Ga., Hospital Authority will issue $630 million of revenue bonds today in a negotiated deal led by Bank of America Merrill Lynch. The bulk of the issue, which will benefit Northeast Georgia Health System Inc., is rated A by Fitch Ratings. Fitch rates the $250 million of Series 2010B bonds A-plus because they are additionally secured by Hall County if revenue is insufficient to meet debt service.
The San Diego County Water Authority’s $639 million revenue offering is expected to be priced tomorrow after a retail order period today.
It will include a $537 million series of Build America Bonds and a $102 million tax-exempt series, consisting of serial bonds maturing from 2011 to 2026 that are rated Aa3 by Moody’s, AA-plus by Standard & Poor’s, and AA by Fitch.
Activity in the new-issue market was light yesterday.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: “Munis survived last week with slightly lower yields, a flatter yield curve, tighter credit spreads, and aggressive price bumps in many of the larger primary market loans.”
“These were all despite a large new-issue calendar, another downgrade for California, and a rally in Treasuries that made tax-exempts a relative drag on performance,” he wrote. “It must be January, where the new-issue calendar is feeding tax-exempt reinvestment needs and where zero-interest money funds are again fueling large mutual fund inflows. Still, near-term challenges are emerging via resistance to further gains in high-grade bonds because of low nominal yields and perhaps because of state budget travails and associated downgrade risks.”
“Last week, institutional selling reached a level that in recent years has signaled a lack of confidence in further gains, tighter credit spreads in bond evaluations support this notion, and the credit default swap market is calling for a pullback,” Fabian wrote added.
“These potentially negative trends may break against a lighter new-issue calendar this week, in particular with respect to high-grade paper that the retail investor loves, and dealers’ interest in moving unsold balances from last week’s sales. Thus, we still see a bias to lower yields, but the evidence for at least a temporary correction is building.”
In another weekly report, George Friedlander, muni strategist at Morgan Stanley Smith Barney, wrote that last week “the overall performance of the market was actually fairly impressive given that the calendar was relatively heavy, and dominated by tax-exempt issues for a change.”
“Roughly $9 billion in new issues came to market this week, more than 80% of which was tax-exempt, rather than Build America Bonds,” he wrote.
“This does not reflect a move away from BABs to any great degree, but rather a confluence of independent events which happened to lead to more tax-exempt supply for a change. Nevertheless, we would also note that the after-subsidy yield advantage in the BAB market has continued to decline, as the muni market continued to perform well in recent months relative to Treasuries, and BAB spreads to treasuries remained relatively constant.”
The economic calendar was light yesterday.
