The anaconda of apathy continued to tighten its stranglehold on the municipal marketplace Wednesday. And by many participants’ accounts, the sparse volume and turnover must increase dramatically and soon in order to spark any serious and sustained investor interest.
To begin with, buyers are discouraged by what they see, according to a Florida trader. They see a light calendar this week and the next. They think expectations for the following week are probably too optimistic, at this point. So, buyers think there will be better opportunities down the road.
And dealer liquidity is spotty at best, while rates are somewhat stable.
“It’s really hard to tell what’s driving the market because the flow isn’t there,” he said. “Total-return buyers are more looking at inefficiencies than new-issue pricing. Your crossover buyers have been distracted with month-end and underwater trades that they established earlier in the month. They’re tired. It would really be a stretch to come up with one factor driving the market, when it’s a multitude of factors. And a lot of those will drop aside as we get to the holiday.”
Traders were seeing some demand at the front end of the curve and spotty inquiry out to 10 years. The back end has been “by appointment basis,” the Florida trader said.
Still, tax-exempt yields were steady across all but the belly of the curve, according to the Municipal Market Data scale. Yields for maturities in 2018 through 2028 fell one basis point.
The benchmark 10-year yield on Wednesday ticked down one basis point to 2.25%. The 30-year yield remained unchanged at 3.89%.
The two-year yield held fast at 0.30% for a 16th straight session, hovering at its lowest level in more than 40 years.
Treasury yields, after starting the morning firmer, ended the day’s session higher. The 10-year benchmark yield jumped five basis points to 2.24%.
The 30-year yield rose eight basis points to 3.61%. The two-year yield held steady at 0.21%.
But the market was mostly lethargic on the day and lacking in broad appeal, according to MMD analyst Randy Smolik.
“The muni market was definitely not hitting on all cylinders,” he wrote in a report on the day. “Many participants still seemed sidelined. Meanwhile, Treasuries have turned directionless over the past few sessions, which may be feeding some muni apathy.”
New issuance for the week before Labor Day typically is rather low, and this week is not expected to be any different. According to industry estimates, scheduled municipal bond sales should total a scant $1.2 billion, compared to a revised $4.4 billion last week.
August new-issue volume stood at about $21 billion, through 900 deals. That number was down by 29.3% from the same month in 2010, when 1,218 offerings came to market totaling $29.7 billion.
For 2011, new issuance in the primary market is 38% lower at this point in the calendar year than it was over the same period in 2010.
About $163.3 billion in new issuance has reached the market this year, way down from $263.8 billion over the same period in 2010.
In competitive deals, Wells Fargo Securities won $247.8 million of Florida State Board of Education lottery revenue refunding bonds. The bonds are rated A1 by Moody’s Investors Service, AAA by Standard & Poor’s, and A-plus by Fitch Ratings.
Yields range from 0.85% with a 5.00% coupon in 2014 to 3.40% with a 4.00% coupon in 2023.
Bank of America Merrill Lynch won $191.2 million of New York Local Government Assistance Corp. subordinate-lien refunding bonds. The bonds are rated AAA by Standard & Poor’s and AA by Fitch.
Yields ranged from 0.35% with a 5.00% coupon in 2014 to 2.11% with a 5.00% coupon in 2020. Debt maturing in 2012, 2013, 2017, and 2021 was sold but not available.
On the negotiated side of the ledger, Wells Fargo priced for institutions $121.1 million of Tampa water and sewer systems improvement and refunding revenue bonds.
The bonds are rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Yields ranged from 0.51% with a 2.00% coupon in 2013 to 4.18% with coupons of 4.00% and 4.125% in a split maturity in 2031. At repricing, yields fell two basis points on the short end and four basis points at the 10-year range. Debt maturing in 2012 was not reoffered for sale.
RBC Capital Markets priced $93.9 million of hospital revenue refunding bonds for North Carolina’s New Hanover Regional Medical Center. The bonds were rated A1 by Moody’s and A-plus by Standard & Poor’s.
Yields ranged from 0.98% with a 3.00% coupon in 2012 to 4.78% with coupons of 4.625% and 5.00% in a split maturity in 2028.
In economic news, the Institute for Supply Management-New York’s Report on Business current business conditions index indicated that New York City business activity contracted for the first time since 2009. The current business conditions index declined to 47.8 in August from 57.2 in July.
The report’s six-month outlook index decreased to 59.9 from 63.2. A reading higher than 50.0 represents an expansion in business activity.
In addition, the National Association of Purchasing Management-Chicago reported Wednesday that the Chicago Purchasing Managers’ Business Barometer slid to 56.5 in August from 58.8 in July.
An index reading below 50 indicates a slowing economy, while a level above 50 suggests an economy that is expanding.
