Market Post: Munis Somewhat Stronger with Slight Trading

The municipal market sauntered out of the gate Tuesday as participants expect the large calendar to set the tone for the week.

But until the largest deals arrive, most scheduled for Wednesday and Thursday, secondary market activity remains relatively subdued, traders said.

"It's been a typical Tuesday so far; lots of bid-wanteds, block size, floating around," a trader in New York said. "It's not too active in the secondary. Most people are waiting to see where new issuance will price on the day and the rest of the week."

Still, the market appears slightly better on the front end of the yield curve, around six-to-10 years, the trader added. But that's based on thin volume.

"People want to see what kind of concession they'll get on the primary to get the paper priced," he said. "So that's why you see the light secondary right now."

Investors anticipate a moderately heavy calendar this week. An estimated $9.65 billion of new volume should reach the market, Ipreo LLC and The Bond Buyer report.

Last week, a revised $5.38 billion arrived, according to Thomson Reuters. This week, a $2.9 billion Texas transportation deal, expected from the Grand Parkway Transportation Corp., should lead the charge.

The deal will provide finance for a portion of a loop circling Houston, Alan Schankel, a managing director in munis for Janney Capital Markets, wrote in a research brief. Most of the issue is rated AA by Standard & Poor's and AA-minus by Fitch Ratings, due to security from a toll equity agreement with the Texas Department of Transportation, he added. Early talk of yields showed a 40-year maturity at 5.15%. For a smaller $200 million piece, rated BBB by Standard & Poor's and BBB-plus by Fitch, a 40-year maturity yield may hit 5.625%.

Piper Jaffray & Co. held a second day of retail Monday on $228 million of University of Connecticut general obligation bonds. The bonds were rated Aa3 by Moody's Investors Service, AA by Standard & Poor's and AA-minus by Fitch Ratings.

Yields on the first series of $174.2 million ranged from 0.50% with a 3% coupon in 2015 to 4.32% with a 4.25% coupon in 2033. Bonds maturing in 2014, 2030 and 2032 were not offered for retail. The bonds are callable at par in 2023.

Yields were lowered as much four basis points at five and six years, and one or two basis points at the short and far ends the curve. Yields on the second series of $53.9 million ranged from 0.40% with a 3% coupon in 2015 to 3.13% with a 4% coupon in 2024. Bonds maturing in 2014 were not offered to retail investors. The bonds are callable at par in 2023.

Yields were lowered as much as five basis points. Institutional pricing is expected to be held Tuesday.

Tax-exempt yields started the day somewhat firmer across the curve, according to one market gauge. Yields from six to 12 years are flat to two basis points lower. Beyond 12 years, they appear steady; there was no read for the front end of the curve at press time.

The 10-year triple-A tax-exempt steadied at 2.66%, according to the Municipal Market Data scale read. The 30-year yield remained at 4.00%, while the two-year held at 0.45% for the third session.

Yields on the Municipal Market Advisors 5% scale ended mostly flat on Monday, falling one basis point at six years. The 10-year and 30-year yields held at 2.84% and 4.11%, respectively. The two-year remained at 0.54% for the third straight session.

Treasuries started the day's session mixed across the curve. The benchmark 10-year yield held steady at 2.55%. The two-year yield skipped up one basis point to 0.35% and the 30-year yield dropped two basis points to 3.59%.

In economic news, the June consumer price index gained 0.5%. Core CPI matched economists' estimates with a 0.2% increase.

These generated a 1.8% increase overall and a 1.6% core gain over-the-year paces, a moderate outcome according to economists.

Also, the Federal Reserve reported Tuesday that industrial production increased 0.3% in June after a flat May. Capacity utilization rose to 77.8% from a revised 77.7% in May; it first was reported as 77.6%.

Economists polled by Thomson Reuters anticipated a 0.3% rise in industrial production and capacity utilization of 77.7%.

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