The municipal market was slightly weaker yesterday amid fairly light secondary trading activity.
Traders said tax-exempt yields were lower by about two or three basis points overall.
“The market today is quiet and weak,” a veteran trader in Chicago said. “There is not so much flexibility. The bid side is weaker.”
The trader said the week’s new issuances will dictate where the market is headed.
“It will help us price better,” he said. “Right now we are slow, and when we get slow, we get weaker.”
A trader in Los Angeles echoed that sentiment, noting that the market feels a little bit heavy and is trying to lose some paper.
“It’s feeling a little on the weaker side,” the Los Angeles trader said. “There are a number of deals coming up this week and I think they will have to be adjusted to where the market is when trying to get them done. I expect that we are going to see some concessions to the market being a little weaker here.”
The Treasury market showed losses yesterday. The benchmark 10-year note finished at 3.27% after opening at 3.24%. The 30-year bond finished at 4.19% after opening at 4.15%. The two-year note finished at 0.75% after opening at 0.72%.
The Municipal Market Data triple-A scale yielded 2.97% in 10 years and 3.77% in 20 years yesterday, following levels of 2.93% and 3.73% on Friday. The scale yielded 4.07% in 30 years yesterday, following 4.04% on Friday.
Friday’s triple-A muni scale in 10 years was at 91.0% of comparable Treasuries and 30-year munis were at 97.6%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 101.5% of the comparable London Interbank Offered Rate.
Revenue bond issues for large transportation initiatives in three states and two sizeable note deals will be at the forefront of the primary market this week.
The transportation offerings hail from Texas, Florida, and Kentucky. They are part of an estimated $5.71 billion of new long-term volume planned for pricing, according to Ipreo LLC and The Bond Buyer.
A revised $5.71 billion was actually priced last week, according to Thomson Reuters.
The largest transportation deal is a $600 million sale of private-activity senior-lien bonds from Texas that is expected to be priced today by Bank of America Merrill Lynch.
The bonds are rated Baa3 by Moody’s Investors Service and BBB-minus by Standard & Poor’s.
Florida’s Orlando-Orange County Expressway Commission follows suit tomorrow with a $500 million offering planned by senior manager Bank of America, after a retail order period today.
The bonds are rated A by Standard & Poor’s and Fitch Ratings. The structure was still being finalized at press time.
Elsewhere in the Southeast, a $334.2 million sale of economic development road revenue bonds is being planned by the Kentucky Turnpike Authority. Goldman, Sachs & Co. is expected to price the offering today.
The deal consists of $148.6 million of Series A tax-exempt economic development revenue refunding bonds and $185.5 million of Series B taxable Build America Bonds.
In other prominent deals this week, a pair of note offerings totaling over $1 billion is being planned by issuers in Wisconsin and California to help finance their general fund cash-flow needs for fiscal 2010-2011.
Wisconsin will competitively sell $800 million of one-year operating notes today, while the Los Angeles Unified School District is planning to sell $540 million of tax and revenue anticipation notes in a negotiated sale tentatively planned for pricing today by Bank of America Merrill.
In the Midwest, Illinois is expected to appear twice this week.
Its first deal could bring up to $500 million of sales tax revenue refunding bonds to market today in a negotiated pricing planned by Cabrera Capital Markets LLC.
The state’s other offering consists of $300 million of GO BABs that are slated for competitive sale on Thursday and structured to mature serially from 2011 to 2035.
The refunding will be structured with serial bonds maturing from 2011 to 2021 and rated with a natural AAA from Standard & Poor’s and AA-plus from Fitch.
In the new-issue market yesterday, Iowa’s Cedar Rapids Community School District competitively sold $30 million of infrastructure sales, services, and use-tax revenue bonds to Hutchinson, Shockey, Erley & Co. with a true interest cost of 4.71%.
The bonds mature from 2027 through 2030, with yields ranging from 4.38% with a 4.25% coupon in 2027 to 4.58% with a 5% coupon in 2030.
The bonds, which are callable at par in 2019, are rated A by Standard & Poor’s.
In a weekly report, Guy LeBas, chief fixed-income strategist at Janney Capital Markets, wrote that the municipal market had a difficult week.
“Although the new-issue calendar had a decent amount of BABs and tax frees, underwriters adjusted yields higher to get issues placed as yields rose throughout the week,” he wrote. “Ratios for tax-free bonds remain attractive — near recent highs — but the low absolute level of tax-free yields has given some investors pause. Last week’s backup in yields should bring more stability this week going into a lighter calendar.”
The ongoing problems in European financial markets influenced U.S. Treasury yields, he said.
“Two-year and 30-year muni-to-Treasury ratios remained well above the 100% level, while the 10- year benchmark flirted with 100% without crossing the line,” LeBas wrote. “Treasury yields plunged during April and well into May as the flight-to-quality reaction to the European contagion kicked in. By mid-May, yields arrived at such a low point that investors ignored favorable ratios and insisted on higher returns. With a volatile Treasury market as background, muni yields headed north.”
The economic calendar was light yesterday.
Priti Patnaik contributed to this column.
