Munis Mostly Flat as Secondary Snoozes

The municipal market was mostly flat Monday amid fairly light secondary trading activity.

“There isn’t a whole lot of trading going on in the secondary,” a trader in San Francisco said. “There are some bits and pieces trading, but it’s a quiet session for the most part.”

He predicted decent activity in the primary this week, but said it was unchanged Monday.

“We had some firmness that carried through to late last week, but that’s sort of faded at this point and we’ve just been flat since late last week,” the San Francisco trader said.

The Treasury market showed some losses Monday. The benchmark 10-year note finished at 2.96% after opening at 2.91%. The 30-year bond finished at 4.07% after opening at 3.99%. The two-year note finished at 0.57% after opening at 0.55%.

The Municipal Market Data triple-A scale yielded 2.58% in 10 years and 3.67% in 20 years Monday, following levels of 2.57% and 3.67% Friday. The scale yielded 3.97% in 30 years Monday, matching Friday.

“It’s a bit of a quiet start,” a trader in New York said. “I’d say we’re pretty much flat at this point.”

Monday’s triple-A muni scale in 10 years was at 87.2% of comparable Treasuries and 30-year munis were at 97.8%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 99.8% of the comparable London Interbank Offered Rate.

Minnesota will lead a modest slate of new state and local government debt issuance this week as it comes to market Tuesday with a competitive $865 million GO deal.

Municipalities are scheduled to float $5.45 billion of debt this week, according to data from The Bond Buyer and Ipreo. The calendar includes $4 billion of negotiated deals and $1.45 billion of competitive deals. The market digested $7.59 billion of new municipal bonds last week.

The Minnesota offering is broken into three pieces. A $635 million tax-exempt component will raise proceeds to finance programs and projects for a variety of purposes, including educational facilities, parks, and pollution-control facilities. A second tax-exempt piece, with $225 million in par value, will raise money for improvements and projects on the state’s trunk highway system.

A $5 million taxable portion of the deal will be used to finance programs for the state’s Rural Finance Authority. Both tax-exempt portions will spread maturities evenly from 2011 to 2030. The taxable portion will mature in 2015.

Minnesota is rated Aa1 by Moody’s Investors Service and AAA by Fitch Ratings.

Also on the calendar is an $850 million New York City Transitional Finance Authority deal, which is scheduled to price Wednesday. New York City is expected to finance about half its capital projects through the TFA, the debt of which is backed by the city’s income and sales taxes.

The deal, led by Citi, will have four components, three of which are taxable and one of which is tax-exempt. Moody’s rates the issue Aa1. The taxable portions include $470 million of BABs, $125 million of qualified school construction bonds, and $100 million of adjustable-rate taxable paper.

The tax-exempt portion has a $155 million face value. The personal income tax revenues that secure bonds issued by the TFA totaled $6.7 billion in fiscal 2009 and are projected to increase to $8.7 billion by fiscal 2014.

Meanwhile, the Michigan Finance Authority plans to sell $745.9 million of state aid revenue notes in a deal led by Siebert Brandford Shank & Co. The notes will mature in August 2011, and are secured by letters of credit from either Scotia Bank or JPMorgan.

In the new-issue market Monday, Bank of America Merrill Lynch priced $150.4 million of lottery revenue bonds for retail investors on behalf of the West Virginia Economic Development Authority.

The bonds mature from 2011 through 2030 with term bonds in 2035 and 2040. Yields range from 0.55$ with a 2% coupon in 2011 to 4.44% with a 4.25% coupon in 2030.

Bonds maturing in 2021, 2022, 2024, from 2027 through 2029, and in 2035 and 2040 were not offered during the retail order period.

The bonds, which are callable at par in 2020, are rated A1 by Moody’s, AAA by Standard & Poor’s, and A-plus by Fitch.

Alan Schankel, managing director at Janney Capital Markets, wrote in a commentary that “the paradigm of moderate supply and strong demand continues to push tax-free yields lower, although the pace of the decline in yields is lagging that of benchmark Treasury yields.”

However, Schankel said parts of the yield curve are participating unequally in the rally.

“Short and medium term maturities have benefited disproportionately, with yields for two, five and ten-year maturities reaching record lows,” he wrote. “On the other hand, yields for longer maturities, more subject to inflationary concerns, are still above record levels, but are approaching the pre-crisis levels of early 2008.”

In economic data released Monday, construction spending edged higher by 0.1% in June. May’s construction spending was revised sharply lower to a decrease of 1.0%. Economists expected June construction spending would fall 0.5%, according to the median estimate from Thomson Reuters.

According to the Institute for Supply Management’s monthly manufacturing report, the ISM index dipped to 55.5 in July from 56.2 in June. Economists polled by Thomson Reuters expected the index to fall to 54.1.

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