Munis Weaken on New-Issue Onslaught

The municipal market weakened Monday as concern about this week’s massive new-issue calendar weighed heavily on secondary trading, sending 30-year yields to a 12-month high.

Traders said tax-exempt yields were higher by eight to 12 basis points among bonds maturing in 10 years or later, while weakening three to five basis points on the short end. Supply is outpacing demand as issuers hurry new deals to market ahead of the impending demise of the Build America Bond program on Dec. 31.

“There’s a lot of hesitancy out there given the calendar that we are facing,” a trader in New York said. “There are more customer bid-wanteds than usual and just not a lot of liquidity. It’s not a good time to have to move paper.”

Municipal Market Data’s triple-A scale yielded 2.75% in 10 years Monday, 11 basis points higher than Friday’s 2.64%, while the 20-year scale yielded 3.88%, 12 basis points more than Friday’s 3.76%.

The scale for 30-year debt climbed 11 basis points to 4.31%. The MMD 30-year triple-A scale has now increased 38 basis points since last Monday to its highest level since Nov. 18, 2009, when it yielded 4.33%.

Meanwhile, 20-year debt is at its highest level since Sept. 1, 2009, when it yielded 3.91%, and 10-year yields are at their highest level since July 1, when the yield was 2.76%, according to MMD.

“What we’ve noticed today is a lot of people offering bonds at a discount to listed offerings,” said John Donaldson, director of fixed income at Haverford Investments, which manages $600 million of municipals. “We’re right at the peak of the pressure as we speak.”

Monday’s triple-A muni scale in 10 years was at 93.7% of comparable Treasuries and 30-year munis were at 99.3%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 108.6% of the comparable London Interbank Offered Rate.

The Treasury market also weakened Monday. The benchmark 10-year note was quoted near the end of the session at 2.93% after opening at 2.79%. The 30-year bond finished at 4.40% after opening at 4.28%.

The two-year note was quoted near the end of the session at 0.53% after opening at 0.50%.

Cash-strapped California is poised to dominate the municipal arena this week with two separate offerings amid an estimated $14.11 billion of new volume to the long-term market, according to Ipreo LLC and The Bond Buyer.

New issuance is surging ahead of the impending expiration of the Build America Bond program at year’s end. The upcoming slate of new-money debt is nearly double the $7.9 billion average recorded during the first 43 weeks of this year.

In the single largest short-term deal ever sold in the municipal market, the Golden State plans to sell $10 billion of revenue anticipation notes to support its cash-flow needs for the 2010-2011 fiscal year when lead manager JPMorgan prices the offering on Wednesday.

The deal will shatter the previous record — a $9 billion sale of Rans by California in October 2002, according to data from Thomson Reuters.

Note sales are not calculated in the week’s total estimated volume. About $50 billion in notes volume has come to market overall so far this year, according to The Bond Buyer.

Leading the long-term market, Citi is expected to price $2 billion of taxable various-purpose general obligation BABs for California on Thursday following a retail order period Wednesday.

The notes, whose principal and interest is payable exclusively from unapplied money in the state’s general fund, are expected to be rated MIG-1 by Moody’s Investors Service, SP-1 by Standard & Poor’s, and F2 by Fitch Ratings.

California’s long-term GO ratings stand at A1 from Moody’s and A-minus from Standard & Poor’s and Fitch.

The Texas Public Finance Authority is preparing a $1.2 billion sale of unemployment compensation obligation-assessment revenue bonds on behalf of the Texas Workforce Commission. They will be priced Thursday by senior book-runner Bank of America Merrill Lynch. The commission administers the state’s unemployment insurance program.

Rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch, the Series 2010A bonds are structured to mature from 2011 to 2017.

The Dallas Independent School District is readying $871.1 million of taxable school building bonds, which are slated to be sold in the competitive market Tuesday with a structure maturing from 2021 to 2035.

The bonds are expected to be rated Aa2 by Moody’s, A-plus by Standard &Poor’s, and AA by Fitch.

In economic data released Monday, retail sales exceeded economist expectations in October, jumping 1.2% on stronger auto sales.

Excluding autos, retail sales grew 0.4% as motor vehicle sales rose 5.0%. Economists expected October gains of 0.7% for retail sales and 0.4% for sales excluding autos. Excluding auto and gasoline sales, retail sales rose 0.4% in October.

Manufacturing conditions eroded faster than economists predicted in November in the New York region, according to the Empire State Manufacturing Survey released Monday by the Federal Reserve Bank of New York.

The survey’s general business conditions index fell into negative territory in November for the first time in more than a year, dropping to negative 11.14 from 15.73 in October. Economists expected the index would dip to 14.0.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER