Market Close: Munis Wait for Primary to Replenish Secondary

The municipal bond market opened the trading week on a typically slow Monday following a big rally last week that sucked all the bonds out of the secondary.

Traders said the market was looking forward to several billion-dollar deals to flood the market later this week.

"The bids aren't good in the secondary so I don't know if people are waiting to see how deals come or what's going on," a Chicago trader said. "It's like this a lot on Mondays."

One New York trader added the market is looking at California and the Florida Hurricane Catastrophe Fund to issue $2 billion each in bonds later this week. It's very quiet," he said.

"There are also not that many bonds around," the trader added. Most bonds in last week's new issues were gobbled up Thursday and Friday in the secondary.

In the primary market this week, $9.72 billion is expected to hit the market, up from last week's revised $5.21 billion. On the negotiated calendar, $7.79 billion should be issued, up from last week's revised $2.49 billion. In competitive deals, $1.93 billion is expected to be auctioned, down slightly from last week's revised $2.72 billion.

RBC Capital Markets priced $104.2 million of Northwest Independent School District taxable and tax-exempt unlimited tax refunding bonds for Denton, Tarrant, and Wise counties in Texas. The bonds are rated Aa2 by Moody's Investors Service and AA by Fitch Ratings. The bonds have a triple-A rating guaranteed by the Texas Permanent School Fund Guarantee Program.

Yields on the first series of $60.1 million of taxable bonds ranged from 0.426% with a 4% coupon in 2014 to 3.662% priced at par in 2032. Spreads ranged from 20 basis points to 140 basis points above the comparable Treasury yields. The bonds are callable at par in 2023.

Yields on the second pricing of $44.1 million of tax-exempts ranged from 0.66% with a 5% coupon in 2017 to 3.20% with a 3% coupon in 2031. The bonds are callable at par in 2023.

Bonds with 5% coupons maturing between 2017 and 2022 were priced 10 basis points to 18 basis points above Friday's Municipal Market Data scale. Yields were raised two basis points from preliminary pricing on bonds maturing between 2024 and 2030.

In the secondary market, trades compiled by data provider Markit showed firming.

Yields on New Jersey Transportation Trust Fund Authority 5s of 2042 plunged nine basis points to 3.63% while Ohio's Buckeye Tobacco Settlement Financing Authority 5.125s of 2024 dropped four basis points to 6.06%.

Yields on Massachusetts School Building Authority 5s of 2030 and California 5s of 2038 fell one basis point each to 2.69% and 3.61%, respectively.

Yields on New York City Municipal Water Finance Authority 5s of 2047 and San Antonio, Texas, 4s of 2030 fell one basis point each to 3.43% and 2.91%, respectively. Yields on Florida Department of Transportation 5s of 2026 slid one basis point to 1.26%.

Municipal bond scales ended steady to one basis point firmer Monday after posting big gains late last week.

Yields on the Municipal Market Data triple-A GO scale ended flat. The 10-year yield and 30-year yields finished steady at 1.71% and 2.93%, respectively. The two-year also closed steady at 0.29% for the second session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale ended as much as one basis point lower. The 30-year yield fell one basis point to 3.04%. The two-year and 10-year yields closed flat at 0.32% and 1.79%, respectively.

Treasuries weakened as the day progressed. The benchmark 10-year yield and the 30-year yield rose four basis points each to 1.74% and 2.91%, respectively. The two-year was steady at 0.23%.

Exchange-traded funds that invest in municipal bonds have barely posted positive returns year-to-date.

The iShares S&P National AMT-Free Municipal Bond ETF - ticker MUB - was up 0.43% while the SPDR Nuveen Barclays Capital Short Term Municipal Bond ETF - ticker SHM - rose 0.41% for the year.

The PowerShares Insured National Muni Bond ETF - ticker PZA - fell 0.23 for the year while the Market Vectors High Yield Municipal Index ETF - ticker HYD - dropped 0.06%.

Meanwhile, the Market Vectors Long Municipal Index ETF - ticker MLN - recorded a negative 1.13% so far this year.

And most muni ETFs underperformed Treasury ETFs for the year.

The ProShares Ultra Seven to 10 Year Treasury ETF - ticker UST - jumped 2.52% for the year. The iShares Barclays Three to Seven Year Treasury Bond Fund - ticker IEI - increased 0.46%.

The iShares Barclays 20-year-plus Treasury Bonds - ticker TLT - increased 2.89% while the iShares Barclays One- to Three-Year Treasury Bond Fund - ticker SHY - increased 0.05%.

Other indexes show slight increases. The S&P National AMT-Free Muni Bond Index returned 1.04% so far this year. For April, the index is up 0.69%.

The S&P Short-Term National AMT-Free Municipal Bond Index is up 0.56% year-to-date and increased 0.06% for April.

The S&P Intermediate-Term National AMT-Free Municipal Bond Index grew 0.95% so far this year and is up 0.58% month-to-date.

Further out on the scale, the S&P Long-Term National AMT-Free Municipal Bond Index increased 1.25% so far in 2013 and is up 0.98% for the month.

Looking at specific maturities, the S&P AMT-Free Muni Series 2018 Index increased 1.12% year-to-date and 0.49% so far this month while the S&P AMT-Free Muni Series 2022 returned 1.37% for the year and a whopping 1.42% for April.

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