The tax-exempt market was dead on arrival Tuesday morning as traders waited for new deals to start pricing later in the day.
Generally speaking, traders hinted at fears of outflows and rising interest rates.
"It's flat lining," a Chicago trader said. "There is just not a lot of activity. It's a little more focused on the competitive market but overall the calendar is light if you take out big situations."
He added that activity is focused in the 10-year range. "That is a staple part of the curve and business inside 10 years is being driven by customer orders."
While munis look cheap - ratios are all over 100% - traders are still concerned about the absolute low yields. And some think the stock market and high dividend paying stocks has the potential to take money out of munis. "With ratios over 100% in key spots that's normally a great value. But right now yields are so low that it is an overall asset class decision and not a bond decision."
Still, outflows have been muted and have come mainly from the short-term money market funds. "People aren't necessarily selling bonds, but they are taking cash out of short-term money markets and putting it to work in other asset classes."
In the primary market Tuesday, Wells Fargo is expected to price for institutions $400 million of California State Public Works Board lease revenue bonds for the Judicial Council of California, the Yuba City Courthouse and lease revenue refunding bonds for the Department of State Hospitals, Coalinga. The bonds are rated A2 by Moody's Investors Service, A-minus by Standard & Poor's, and BBB-plus by Fitch Ratings.
Citi is expected to price $242 million of Portland, Ore., second lien water system revenue and refunding bonds, rated Aa1 by Moody's. Bank of America Merrill Lynch is expected to price $170 million of Michigan State University general revenue bonds, rated Aa1 by Moody's and AA by Standard & Poor's.
In the competitive market, Wisconsin is expected to auction $434.5 million of GOs. Kentucky's Louisville and Jefferson County Sewer District is expected to auction $230 million of bonds, rated Aa3 by Moody's and AA by Standard & Poor's.
Municipal bond scales ended steady to one basis point firmer on Monday.
Yields on the Municipal Market Data triple-A GO scale ended flat. The 10-year was steady at 1.70% for the fourth session and the 30-year closed unchanged at 2.90% for the second trading session. The two-year closed steady at 0.29% for the 12th session.
Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale ended flat to one basis point lower. The 10-year yield fell one basis point to 1.76%. The 30-year closed flat at 3.02% for the third session and the two-year was flat at 0.32% for the 12th session.
Treasuries were slightly stronger Tuesday morning. The benchmark 10-year and 30-year yields slid one basis point each to 1.69% and 2.87%, respectively. The two-year was steady at 0.23%.
In economic news, sales of new single-family houses rose 1.5% to a seasonally adjusted rate of 417,000 in March. Sales fell short of the 420,000 pace expected by economists.
"Although this is one of the least reliable government indicators, it nonetheless adds further to the case that the housing market is in recovery and that this is stimulating construction activity," wrote economists at RDQ Economics. "Sales have risen at a double-digit pace both over the last three months and over the last year.
