The municipal market was largely unchanged yesterday, as participants returned to their desks from the long Presidents Day weekend.
"It's fairly quiet," a trader in New York said. "We're just sort of unchanged right now. It's a bit of a slow start after the long weekend, and people are sort of easing themselves back. It's a fairly big new-issue week, so things will pick up, but right now it's quiet and pretty flat."
"There's some bits and pieces trading, but it's light for the most part," a trader in Los Angeles said. "I'd just call it flat."
The Treasury market showed some gains yesterday. The benchmark 10-year note was quoted near the end of the session at 3.66% after opening at 3.69%. The yield on the two-year note finished at 0.80% after opening at 0.82%. The yield on the 30-year bond finished at 4.64% after opening at 4.65%.
The Municipal Market Data triple-A scale yielded 2.87% in 10 years and 3.80% in 20 years yesterday, matching Friday's levels. The scale yielded 4.17% in 30 years yesterday, also matching Friday.
Friday's triple-A muni scale in 10 years was at 78.0% of comparable Treasuries and 30-year munis were at 89.7%, while 30-year tax-exempt triple-A general obligation bonds were at 93.5% of the comparable London Interbank Offered Rate.
Illinois and the Los Angeles Unified School District will share the limelight this week as each brings a billion-dollar deal to market. New volume is an estimated $6.81 billion, according to Ipreo LLC and The Bond Buyer.
Illinois will continue to dominate the new-issue activity in the Midwest, as it has since the start of 2010, with this week's $1.43 billion GO refunding that is planned for pricing by co-senior book-runners Morgan Stanley and Citi tomorrow, following a retail order period today.
The deal is the state's third billion-dollar sale since the beginning of the year, keeping it the Midwest region's top issuer, with $4.46 billion among four issues and a market share of 36.8%, according to Thomson Reuters.
Structured to mature serially from 2011 to 2025, the Illinois tax-exempt GOs are rated A2 by Moody's Investors Service, A-plus by Standard & Poor's, and A by Fitch Ratings. They will refund GO debt issued between 1999 and 2002.
In California, the nation's second-largest school district will add to the new-issue activity when it sells a two-pronged GO financing totaling $1.9 billion.
The LAUSD plans to issue $1.41 billion of the deal as BABs tomorrow through a negotiated pricing led by co-senior managers Morgan Stanley, Citi, Goldman, Sachs & Co., and Barclays Capital. That portion of the deal is being sold to finance the district's ongoing building program in the face of declining state operating support and a projected $470 million deficit for fiscal 2011.
At the same time, the district will sell up to an additional $504 million of tax-exempt new-money and refunding GO bonds in a Citi-led deal that is also slated for pricing tomorrow. The transaction is expected to be rated Aa3 by Moody's and AA-minus by Standard & Poor's. The new-money portion is sized at $448 million and is expected to mature serially from 2017 to 2034. The refunding portion is around $56 million and is weighted mostly in a 2015 maturity.
In the new-issue market yesterday, New Mexico competitively sold $132.3 million of severance tax bonds to Bank of America Merrill Lynch with a true interest cost of 2.38%.
The bonds mature from 2011 through 2020, with yields ranging from 2.45% with a 5% coupon in 2017 to 3.07% with a 5% coupon in 2020. Bonds maturing from 2011 through 2016 were sold but not available. The bonds are not callable.
New Mexico also competitively sold $100 million of supplemental severance tax bonds to Wells Fargo Securities.
The bonds mature from 2011 through 2020, with yields ranging from 0.45% with a 5% coupon in 2011 to 3.12% with a 4% coupon in 2020. The bonds are not callable.
The bonds are rated Aa3 by Moody's and AA-minus by Standard & Poor's.
Morgan Stanley priced $75 million of GOs for Texas.
The bonds mature from 2010 through 2025, with yields ranging from 0.83% with a 3% coupon in 2012 to 3.64% with a 5% coupon in 2025. Bonds maturing in 2010 and 2011 were decided via sealed bid.
The bonds, which are callable at par in 2019, are rated Aa1 by Moody's and AA-plus by Fitch.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: "Once again, tax-exempt municipal bonds outperformed the Treasury market last week, although this may have been due to inattention during a holiday-shortened trading schedule and the large East Coast snowstorms."
"Still, demand remains exceptionally strong, fueled by investors fleeing the tax-exempt money funds and looking for a safe shelter from rising income tax rates," he added. "This week, the new-issue calendar begins to pick up, and there is speculation of a renewed downdraft for Treasuries. These may make current long-bond prices harder to protect, with a downside potential likely limited to losses as seen in late January."
In economic data released yesterday, the Empire State Manufacturing Survey showed "conditions for New York manufacturers improved at a healthy pace in February," the Federal Reserve Bank of New York reported yesterday, as the general business conditions index surged to 24.91 in the month from 15.92 in January. Economists surveyed by Thomson Reuters had expected the index would be 18.00.
