The municipal market was unchanged to slightly weaker yesterday, with the weakness situated inside of 20 years, amid fairly light secondary trading activity.
“We’re a little bit weaker,” a trader in New York said. “It’s just sort of picking up where we left off last week. The short and intermediate part of the curve is down maybe a basis point or two, maybe three depending on what you’re trading. But out past 20 years, it’s totally flat.”
“It feels pretty flat on the whole, but there is a little bit of weakness,” a trader in Los Angeles said. “I wouldn’t say that it’s more than a basis point or so. But it’s definitely the shorter end if anything. There isn’t a lot of activity, in any event. It’s pretty quiet, people easing their way back from the holiday.”
The Treasury market showed losses yesterday. The benchmark 10-year note was quoted near the end of the session with a yield of 3.99% after opening at 3.94%. The yield on the two-year was quoted near the end of the session at 1.18% after opening at 1.11%. The yield on the 30-year bond was quoted recently at 4.85%, after opening at 4.80%.
The Municipal Market Data triple-A scale yielded 3.11% in 10 years and 3.84% in 20 years yesterday, compared with Thursday’s levels of 3.10% and 3.84%. The scale yielded 4.17% in 30 years yesterday, matching Thursday.
Thursday’s triple-A muni scale in 10 years was at 80.1% of comparable Treasuries and 30-year munis were at 88.2%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 92.7% of the comparable London Interbank Offered Rate.
A handful of reasonably sized deals will head to market this week while many municipal participants continue to be on hiatus due to religious and spring break holidays.
An estimated $4.13 billion of new long-term volume is expected to be priced in the competitive and negotiated markets, according to Ipreo LLC and The Bond Buyer.
That compares to last week when a revised $3.48 billion actually came to market, according to Thomson Reuters.
The largest deal on tap is a $420 million traditional taxable sale from the Irvine Ranch, Calif., Water District. Scheduled to be priced Thursday by Bank of America Merrill Lynch, the bonds are rated triple-A by Moody’s Investors Service and Standard & Poor’s and are tentatively structured as serial bonds maturing from 2011 to 2014.
In the Northeast, Philadelphia will issue $391.3 million of water and wastewater revenue refunding bonds on Thursday in a Morgan Stanley-led deal. The bonds are expected to be rated A3 by Moody’s, A by Standard & Poor’s, and A-minus by Fitch Ratings.
Proceeds will refund outstanding Series 2003 variable-rate bonds and pay $53.9 million to terminate a fixed payer swap to counterparty Citi. The bonds are secured by net operating revenues of the water and wastewater system.
A $350 million revenue sale is also being planned by the Troy, N.Y., Capital Resource Corp. on behalf of Rensselaer Polytechnic Institute. Lead manager Morgan Stanley is expected to price the offering on Thursday with ratings of A3 from Moody’s and A from Standard & Poor’s.
In the competitive market, Illinois will issue $356 million of GOs in a two-pronged deal expected today.
It consists of $300 million of taxable Build America Bonds and $56 million of traditional taxable securities, both of which mature from 2011 to 2035. They are rated A2 by Moody’s, A-plus by Standard & Poor’s, and A-minus by Fitch.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: “The municipal market weakened into quarter end on low volume and a shortened trading schedule last week.”
“Treasury bond losses are exacerbating seasonal tax-related selling pressures, and, with another huge Treasury offering calendar this week and at least temporary confidence in stronger growth, our market could be situated for more of the same this week,” Fabian wrote. “However, a new quarter should also refresh institutional risk taking, and higher yields up front could begin to re-attract investors.
“We also believe there are real limits to just how far Treasury yields can rise; to the extent these outstrip looming increases in tax rates, buyers should emerge, possibly to the detriment of issuers in other taxable fixed income asset classes,” he wrote. “The muni new-issue calendar remains light this week and thus supportive of lower yields, as does the advent of rating reform programs. Fitch will today begin changing ratings on states, the District of Columbia, New York City, and Puerto Rico today; Moody’s own plan begins in two weeks.”
Trades reported by the Municipal Securities Rulemaking Board yesterday showed little movement. A dealer sold to a customer taxable California BAB 5.97s of 2036 at 6.17%, even with where they traded Thursday. A dealer bought from a customer taxable Illinois 5.1s of 2033 at 6.91%, even with where they traded Thursday.
A dealer sold to a customer New York Liberty Development Corp. 5.25s of 2035 at 5.34%, even with where they were sold Thursday. A dealer sold to a customer taxable Anne Arundel County, Md., BAB 6.125s of 2035 at 5.85%, even with where they were sold Thursday.
Economic data released yesterday showed that pending home sales rose 8.2% to a reading of 97.6 in February, far exceeding economists’ estimates. The pending sales figure for January was revised lower to 90.2 from 90.4 reported last month.
Economists were expecting February’s pending home sales reading to decline to 90.2, according to the median estimate from Thomson Reuters.
