The municipal market was unchanged to slightly weaker Monday amid fairly light secondary trading activity.
“There’s a bit of weakness out there,” a trader in Los Angeles said. “Inside of 10 years or so, it’s pretty much flat, but past that, we’re looking at maybe two or three basis points weaker.”
Municipal Market Data’s triple-A scale yielded 2.46% in 10 years Monday, even with Friday’s level, while the 20-year scale yielded 3.55%, two basis points more than Friday’s 3.53%. The scale for 30-year debt climbed four basis points to 3.97% Monday from 3.93% Friday.
“We’re cheapening up a little,” a trader in New York said. “There isn’t a ton of activity out there right now, but we’re definitely a little bit weaker.”
Monday’s triple-A muni scale in 10 years was at 93.4% of comparable Treasuries and 30-year munis were at 95.1%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 105.6% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Monday. The benchmark 10-year note was quoted near the end of the session at 2.56% after opening at 2.53%. The 30-year bond was quoted near the end of the session at 4.12% after opening at 4.12%. The two-year note was quoted near the end of the session at 0.41% after opening at 0.37%.
The Treasury Department Monday auctioned $32 billion of three-year notes with a 1/2% coupon at a 0.575% yield, a price of 99.78. The bid-to-cover ratio was 3.26. The Federal Reserve banks also bought $858.1 million for their own account in exchange for maturing securities.
A hefty $10.22 billion of new municipal volume heads to the primary market this week, according to Ipreo LLC and The Bond Buyer.
In municipals, an $875.8 million Los Angeles Department of Airports revenue offering represents the largest deal of the week and headlines a bevy of California issues. Four of the largest deals of the week are from the Golden State.
The department aims to get the financing on behalf of Los Angeles International Airport off the ground Wednesday when senior book-runner JPMorgan prices the Series 2010D senior revenue bonds following a retail order period on Tuesday.
The bonds have ratings of Aa3 from Moody’s Investors Service and AA from Standard & Poor’s and Fitch Ratings.
The bulk of the week’s activity will take place in the negotiated market, where an estimated $8.91 billion of the week’s total volume is expected. That represents a stark contrast to the revised $3.02 billion that arrived last week, according to Thomson Reuters figures.
The Los Angeles County Public Works Financing Authority will add to the new-issue activity when it sells $805 million of lease revenue debt on Wednesday following a retail order period planned for Tuesday by senior book-runner Bank of America Merrill Lynch.
The bonds, which are rated A1 by Moody’s, and A-plus by Standard & Poor’s and Fitch, are structured to include $700 million of taxable Build America Bonds and recovery zone economic development bonds, as well as $105 million of tax-exempt debt.
The barrage of California supply will also include a $760 million sale from the University of California, which is structured as three series of pooled revenue bonds, all rated Aa2 by Moody’s and AA-minus by Standard & Poor’s.
Barclays Capital is planning to price the issue on Tuesday, which is structured as tax-exempt bonds in Series 2010G, taxable BABs in Series 2010H, and traditional taxable bonds in Series 2010I.
Elsewhere in California, the Santa Clara Valley Transportation Authority is readying a $650 million sale of sales tax revenue bonds.
The deal is structured as two series of bonds: $515 million of Series 2010A taxable BABs and $135 million of Series 2010B tax-exempt bonds.
Rated Aa2 by Moody’s and AA-plus by Standard & Poor’s, the bonds are expected to be priced by co-senior managers Barclays and Citi.
Outside of California, the Massachusetts Development Finance Agency is preparing a $776 million sale of revenue bonds on behalf of Harvard University. Morgan Stanley is planning to price the offering on Tuesday.
The New York City Municipal Water Finance Agency is gearing up to sell $500 million of water and sewer second general-resolution revenue BABs designated as fiscal 2011 Series CC.
Ramirez & Co. will price the deal on Tuesday with two bullet maturities tentatively structured in 2042 and 2043.
In the new-issue market Monday, the Florida State Board of Education competitively sold $200 million of public education capital outlay bonds to Bank of America Merrill Lynch.
The bonds mature from 2011 through 2030, with term bonds in 2033, 2037, and 2040. Yields range from 3.05% with a 5% coupon in 2021 to 3.87% with a 5% coupon in 2028. Bonds maturing from 2011 through 2020 and from 2029 through 2040 were sold but not available.
The bonds, which are callable at par in 2020, are rated Aa1 by Moody’s and AAA by both Standard & Poor’s and Fitch.
In a weekly report, Alan Schankel, managing director at Janney Capital Markets, wrote that supply in the municipal new-issue market is strong, but if the BAB program isn’t renewed at the end of 2010, the tax-exempt/taxable balance will shift, with an uptick in tax-exempt issuance in 2011.
“Our favored proxy for tax free demand is fund flows,” he wrote. “Except for two weeks in April, flows to tax-free municipal funds have been positive all year, with $34.7 billion in new money through October. However, the pace seems to be slowing. Inflows may continue to diminish and even turn negative, as equity markets, propelled by an election tailwind, begin to attract attention. Tax-free flows may shift to equity funds as confidence builds and investors tire of low rates, seeking opportunity in equities.”
