The municipal market remained unchanged Tuesday as the pricing of a $300 million Louisiana general obligation offering provided some much-needed direction to an otherwise lifeless market.
Traders said municipals were unchanged across the curve.
“We’re not up, but we’re not weaker,” said a New York trader. “With such little supply, there is no price discovery. The Louisiana deal kind of gave the market some direction.”
In the new-issue market, the Louisiana bonds were won competitively by Barclays Capital.
While no official pricing details were yet released, the trader said the bonds ranged from 5% in 2016 to yield 2% to 5% in 2030 to yield 4.38%.
The bonds are rated Aa2 by Moody’s Investors Service, and AA by both Standard & Poor’s and Fitch Ratings.
“An aggressive bid on the $300 million Louisiana GO loan provided some encouragement to the bulls, but ample primary balances slowed the secondary reaction,” Randy Smolik wrote in his daily MMD commentary.
“Weak Treasuries in the morning provided some sloppiness to munis, but Treasuries pared losses in the afternoon as concerns heightened over political instability in the Mideast,” he added.
Amid continued light trading in the secondary market, the deal will likely be the largest of the week as Ipreo LLC and The Bond Buyer estimate new volume at $1.79 billion versus a revised $5.95 billion last week, according to Thomson Reuters.
“Yesterday was completely dead,” the New York trader said “Today, there seems to be more interest in buying bonds. People are not paying up, but at least there is a two-way flow. Last week, there was certainly more aggressive buying, but it doesn’t seem like the demand for bonds has abated yet.”
The Municipal Market Data triple-A 10-year scale fell one basis point Tuesday to 2.96%, the 20-year remained unchanged at 4.26%, and the scale for 30-year bonds rose one basis point to 4.70% from Monday.
Meanwhile, Tuesday’s testimony from Federal Reserve Board chairman Ben Bernanke before Congress had more of an impact on the Treasury market than it did on munis, market participants said.
“I would call the muni market a little tired,” another New York trader said. “It seems to be slightly weaker with no real trading going on.”
“Munis are basically kind of in a holding pattern,” he continued. “The redemptions that were happening have slowed, and I think accounts are hoarding cash in anticipation of more redemptions or a calendar that hasn’t materialized yet.”
“They are not really putting cash to work yet either, just having a decent amount of cash on their books,” he said.
Monday’s triple-A muni scale in 10 years was at 86.8% of comparable Treasuries and 30-year munis were at 104.9% according to MMD.
Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 110.1% of the comparable London Interbank Offered Rate.
The Treasury market showed some losses, mostly on the long end Tuesday, following Bernanke’s announcement earlier in the day that the recent surge in oil prices was unlikely to have a big impact on the U.S. economy, but could lead to weaker growth and higher inflation if sustained.
Bernanke also acknowledged that the risk of deflation and the downside risks to the economy have receded.
Treasury prices on the short end began to show signs of shedding some earlier losses by Tuesday afternoon as stock market losses prompted investors to take a new look at U.S. government debt as a safe haven.
Ongoing fears of political unrest in the Middle East and North Africa also fed the bid, though the long end remained weaker.
The benchmark 10-year note was quoted at 3.40% after opening at 3.43%. The 30-year bond was 4.48% at Tuesday’s close after opening at 4.50%. Meanwhile, the two-year note was quoted at 0.66%, only a slight improvement from 0.67% at the open.
Elsewhere in Tuesday’s new-issue market, $79.1 million of limited-tax Seattle general obligation improvement bonds were won by JPMorgan with a true interest cost of 3.648%.
The 2012 maturity with a 3% coupon was not re-offered, while the 2031 maturity carried a 4.50% coupon and was priced to yield 4.57%.
The bonds are rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch.
“I think the municipal market is still dominated by limited supply, and in the absence of heavy supply the amount of buying around is sufficient enough to handle the Street’s inventory and customer selling,” a Pennsylvania trader said.
Looking ahead to the rest of the week, new-issuance prospects remain bleak.
“The week ahead brings modest new risks, with some vulnerability should Friday’s employment number finally surprise to the upside, or should events in Wisconsin continue to go unresolved,” Matt Fabian, managing director of municipal research at Municipal Market Advisors, wrote in his weekly outlook.
In other economic news released Tuesday, the U.S. manufacturing sector grew at its fastest rate in nearly seven years in February, while a gauge of inflation also rose, according to an industry report released on Tuesday.
The Institute for Supply Management said its index of national factory activity rose to 61.4 in February from 60.8 in January, topping forecasts for 61.0. It was the highest level since May 2004.
In a separate economic report, construction spending dropped by a seasonally adjusted 0.7% in January as the level of private nonresidential spending hit the lowest level in more than six years.
