The municipal bond market will be asked to digest a single small deal this week as a welcome lull in new supply continues through the holidays.
The entire municipal calendar this week consists of a solitary $525,000 issue from the Carter County, Okla., Independent School District, which is expected to sell Tuesday in the competitive market.
The bonds, which are not callable, mature from 2014 to 2016.
The light slate of new issuance follows a $3.4 billion menu last week, according to The Bond Buyer and Ipreo data. Eight billion is about typical.
The light supply marks a respite for municipal participants, who were buffeted by several turbulent weeks in November and December.
An inundation of new supply coupled with a sell-off in Treasuries has led to a return of negative 4.6% for municipals so far in the fourth quarter, according to a Standard & Poor’s index tracking the sector.
Municipalities have sold $130.39 billion of debt so far in the final three months of 2010, according to Thomson Reuters — the second-heaviest quarterly issuance in muni bond history.
Heavier issuance was recorded in the second quarter of 2008, when municipalities refunded out of failed auction-rate securities and sold variable-rate demand obligations in droves.
Thursday is the final day of trading in the current quarter, which has been marked by some mammoth weeks of issuance. Municipalities floated $14.7 billion of bonds during the week ended Nov. 19 — the second-highest total in at least five years, according to Bloomberg LP.
The fourth quarter also saw weeks with issuance of $13.2 billion, $12.1 billion and $11.5 billion.
This supply deluge occurred at an inauspicious time, given the 75 basis point increase in the 10-year Treasury yield so far this quarter.
For all the talk of a muni market bloodletting, the ratio of the Municipal Market Advisors 10-year triple-A yield to the 10-year Treasury yield is now 93% — lower than it was at the start the fourth quarter.
Most market-watchers expect light issuance to continue into the beginning of 2011, as it is typical for municipal issuers to ease back on debt sales early in the year.
Municipal bond sales in the first quarter have averaged $52.7 billion since the early 1980s, according to Thomson Reuters. That compares with an average of about $67 billion for second quarters, $57 billion for third quarters, and $68 billion for fourth quarters.
