The municipal market was unchanged to slightly weaker yesterday amid fairly light secondary-trading activity.
“There’s a little bit of weakness out there, but there’s not a whole lot trading just yet,” a trader in New York said. “We’re fairly quiet. I’d call it somewhat unchanged to maybe down a basis point or so in spots.”
“We’re reasonably flat,” a trader in Los Angeles said. “There is somewhat of a weaker tone, and maybe we’re cheaper a basis point, maybe two at most. But I’d tend to call it flat.”
The Treasury market showed mild losses yesterday. The benchmark 10-year note was quoted near the end of the session with a yield of 3.71% after opening at 3.70%. The yield on the two-year was quoted near the end of the session at 0.96% after opening at 0.95%. The yield on the 30-year bond was quoted near the end of the session at 4.64% after opening at 4.63%.
The Municipal Market Data triple-A scale yielded 2.81% in 10 years and 3.78% in 20 years yesterday, following Friday’s levels of 2.80% and 3.78%. The scale yielded 4.15% in 30 years yesterday, matching Friday.
Friday’s triple-A muni scale in 10 years was at 75.5% of comparable Treasuries and 30-year munis were at 89.6%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 93.5% of the comparable London Interbank Offered Rate.
A $750 million New York City GO offering will hit the primary market as part of an estimated $5.62 billion of new long-term volume expected to be priced this week, according to Ipreo LLC and The Bond Buyer.
Last week, a revised $7.58 billion of new competitive and negotiated volume was priced, according to Thomson Reuters.
The largest part of the city’s deal calls for the pricing of up to $675 million of fixed-rate debt, of which $660 million is tentatively structured as new-money taxable Build America Bonds and $15 million as tax-exempt bonds.
Senior book-runner Siebert Brandford Shank & Co. will price the deal on Thursday after the firm takes indications of interest tomorrow.
The BAB portion is expected to include serial bonds from 2011 to 2027, with a final term bond in either 2036 or 2037.
Besides the newest BAB piece, the city also intends to sell $75 million of traditional taxable bonds at a fixed rate in the competitive market on Thursday.
The bonds are rated Aa3 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-minus by Fitch Ratings.
The transportation needs of two of the country’s largest cities figure significantly this week when they bring nearly $1 billion of additional revenue debt to market. New York’s Metropolitan Transportation Authority is planning to sell $500 million of dedicated tax-fund bonds in a deal slated for pricing by JPMorgan tomorrow that will finance various New York City transit and commuter projects.
The bonds are rated AA by Standard & Poor’s and A-plus by Fitch and are secured by dedicated state taxes. They are structured to include tax-exempt debt in Series 2010 A-1 and BABs in Series 2010 A-2.
Meanwhile, the San Francisco Airport Commission is scheduled to bring $436.7 million of international airport second series revenue refunding bonds to market tomorrow in a three-pronged deal also led by JPMorgan.
Series 2010B-3 consists of $119 million of bonds subject to the alternative minimum tax, $216.8 million of Series 2010C non-AMT government-purpose revenue refunding bonds, and $100.7 million of Series 2010D non-AMT private-activity revenue refunding bonds.
The airport revenue bonds are rated A1 by Moody’s, A by Standard & Poor’s, and A-plus by Fitch.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: “Although trading opportunities remain in the municipal market, this is not a traders’ market.”
“Rather, income-oriented buyers — so-called, going-away demand — has driven yields and credit spreads lower and lower as the scarcity of acceptable product continues to meet a growing need for safe, tax-exempt income,” he wrote.
“Lower-rated, safe-sector issuers continue to benefit; last week, California’s $2.5 billion tax-exempt bond sale was upsized once and had its yields lowered twice. This demand continues to come despite a growing chorus of media reports on just how bad things are for state and local governments.”
“Were current market levels more dependent on mark-to-market trading accounts, we might be more concerned; however, the households and mutual funds now putting away bonds have less to lose from headline-rating risk, potentially explaining our market’s resilience,” Fabian added. “Not to mention the point that spreads are tight and tightening nearly everywhere else in fixed income.”
In economic data released yesterday, industrial production edged up 0.1% in February. Capacity utilization increased to 72.7%.
Economists expected industrial production to fall 0.1% and a 72.6% capacity utilization level, according to the median estimate from Thomson Reuters.
The Empire State Manufacturing Survey showed “conditions for New York manufacturers continued to improve at a steady pace in March,” the Federal Reserve Bank of New York reported yesterday as the general business conditions index slipped to 22.86 in the month from 24.91 in February.
Economists surveyed by Thomson Reuters had expected the index would be 21.45.
