The municipal market weakened Monday in light to moderate secondary trading activity ahead of a modest new-issue calendar in the primary this week.
“It’s feeling a bit weaker,” a trader in Los Angeles said. “On the long end, we could be down three or four basis points. Overall, we’re down at least two basis points, but there is some trading going on.”
The Municipal Market Data triple-A 10-year scale was unchanged Monday at 3.22%, the 20-year scale rose two basis points to 4.55%, and the scale for 30-year climbed five basis points to 4.79%.
In the daily MMD commentary, Randy Smolik wrote that the muni curve steepened Monday “as underwriters search for orders in long serials and dollar bonds.”
“Secondary showed problems as well,” he wrote. “Markets in intermediates and shorter were steadier.”
Monday’s triple-A muni scale in 10 years was at 97.3% of comparable Treasuries and 30-year munis were at 106.9%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 114.9% of the comparable London Interbank Offered Rate.
Treasuries showed some gains Monday. The benchmark 10-year note was quoted near the end of the session at 3.29% after opening at 3.32%. The 30-year bond was quoted near the end of the session at 4.46% after opening at 4.49%. The two-year note was quoted near the end of the session at 0.58% after opening at 0.60%.
The Northeast will be a focal point of activity this week when the New Jersey Economic Development Authority and the New York City Transitional Finance Authority team up to bring the first hefty deals of the new year to market.
The two offerings are part of an estimated $5.03 billion in new volume, according to Ipreo LLC and The Bond Buyer. Weekly new issuance of about $8 billion is typical.
Underwriters say the deals could positively affect the market if investors treat them as benchmarks that establish new trading levels, kick-starting demand in the aftermath of a $15 billion outflow from mutual bond funds in recent months.
This week’s slate will be a welcome improvement from the recent seasonal sluggishness.
Issuers priced just under $400 million while much of the market was still in holiday mode last week, according to Thomson Reuters.
The New Jersey EDA deal will consist of $1.9 billion of school facility construction bonds. It will be priced for retail on Tuesday and for institutions on Wednesday by senior book-runner Bank of America Merrill Lynch.
The issue, which is rated AA-minus by Standard & Poor’s, consists of $1.46 billion of refunding bonds, $245 million of taxable refunding bonds, and $240 million of refunding notes that will bear interest at the adjusted SIFMA rate.
The New York City TFA will sell $875 million of future tax-secured subordinate bonds.
The deal will be priced by Barclays Capital on Wednesday, following a two-day retail order period that began Monday.
The bonds are structured to mature serially from 2012 to 2031 and include two term bonds
In Monday’s retail order period, yields range from 1.17% with a 2.5% coupon in 2013 to 5.10% with a 5% coupon in 2034. Bonds maturing in 2012 will be decided via sealed bid.
Bonds maturing in 2024, 2025, from 2027 through 2030, and in 2039 were not offered during the retail order period.
The bonds are callable at par in 2020. The credit is rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch Ratings.
Also, a $1.3 billion New York Liberty Development Corp. sale of Liberty bonds remains on the day-to-day calendar, where it has been since December due to its rate-sensitive nature, according to a source at book-runner Goldman, Sachs & Co.
The revenue bonds are to be sold on behalf of Silverstein Properties Inc. to help fund construction of Tower Four — also known as 150 Greenwich Street. The tower is part of a complex of skyscrapers under construction at the World Trade Center site in lower Manhattan.
In the new-issue market Monday, King County, Wash., competitively sold $175 million of sewer revenue bonds to Citi.
The bonds mature from 2014 through 2032, with term bond sin 2034, 2037, and 2041.
Yields range from 1.70% with a 5% coupon in 2015 to 5.26% with a 5.125% coupon in 2041.
Bonds maturing in 2014, 2018, from 2020 through 2020, and in 2029 and 2030 were not formally re-offered.
The bonds, which are callable at par in 2021, are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s.
In a research note, Alan Schankel, managing director at Janney Capital Markets, wrote that December was an erratic month for the muni market as uncertainty about tax cut extensions and the future of Build America Bonds clashed with rising interest rates and growing investor concern about the financial condition of municipal issuers.
“As it became increasingly apparent that the issuance of taxable BABs would end when the ball dropped in Times Square, there was a rush by issuers to take advantage of the federal interest subsidy before it disappeared,” he wrote, noting that the $16.8 billion of new-issue BABs in December was the highest monthly total in the 21-month lifetime of the popular program.
Schankel also wrote that muni yields are on the rise again, but liquidity is not the culprit this time.
“Concerns about the financial stability of municipal issuers have been growing, stimulated by a drumbeat of media stories about imminent defaults and a wildfire spread of bankruptcies,” he wrote. “We strongly believe predictions of a meltdown for municipal issuers are overstated, so this turmoil creates opportunity.”
In economic data, the Chicago Purchasing Managers’ Business Barometer was revised downward to a December reading of 66.8 from a previous level of 68.6, the National Association of Purchasing Management-Chicago said Monday.
The revision is based on a reevaluation of seasonal factors. The November reading was 62.5.
Meanwhile, the Conference Board’s employment trends index rose to 99.0 in December from 98.5 in November and is up 7.6% from a year ago.
