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Market Post: Munis Stall On What Feels Like a Monday Holiday

JUN 25, 2012 1:58pm ET
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NEW YORK - The tax-exempt market stalled Monday as traders said it almost felt like a holiday. The primary market is seeing some activity as several New York deals are being priced for retail, but the secondary market has shut down.

"The secondary is slow, if not stopped," a Chicago trader said. "It's certainly not going forward and it almost feels like a holiday. I think ultimately there is no direction and there is not enough supply to push the market one way or the other."

The trader said that while there are bond-friendly economic numbers, it's not enough to tip the scale one way or the other. "So, we are holding our cards and waiting."

"The ultimate investor has to decide if they are going to accept these yields and come back into the market with all the cash on the sidelines or continue to not care and at some point no one has an unlimited pot of cash to keep holding inventories and with new issues, scales will have to be cut in that instance. So we are waiting to get a sense of the direction."

Munis were steady Monday afternoon, according to the Municipal Market Data scale. On Friday, the 10-year yield ended steady at 1.86% for the sixth consecutive trading session while the two-year ended steady at 0.32% for the 16th straight session. The 30-year yield finished up one basis point to 3.16%.

Treasuries strengthened Monday. The benchmark 10-year yield and the 30-year yield each dropped seven basis points to 1.81% and 2.68%. The two-year yield fell one basis point to 0.31%.

In the primary market Monday, Citi priced for retail $1.14 billion of New York State Thruway Authority general revenue bonds, rated A1 by Moody's Investors Service and A-plus by Standard & Poor's.

Yields ranged from 0.94% with 3% and 4% coupons in a split 2015 maturity to 4.00% priced at par in 2037. Bonds maturing between 2024 and 2026, between 2028 and 2031, and in 2042 were not offered for retail. Credits maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2022.

Jefferies & Co. priced for retail $311.9 million of triple-A rated New York State Environmental Facilities Corp. state clean water and drinking water revolving funds revenue bonds for the New York City Municipal Water Finance Authority.

Yields ranged from 0.32% with a 2% coupon in 2014 to 3.10% with a 3% coupon in 2028. Credits maturing in 2023, 2024, 2026, and 2027 were not offered for retail. Bonds maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.

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A recent phenomenon is the emergence of bonds with shorter call protection as funding alternatives for municipalities. However, the shorter call protection also dampens the potential upside for investors, which in turn reduces the price they are willing to pay.

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