Market Post: Munis Open Flat, Even as They Maintain Firm Tenor

The municipal market opened Tuesday mostly flat, marked by moderate trading and few sellers.

Still, the market carries a firm tone as it readies itself for the week's calendar, which should arrive larger than in weeks past.

"We're sort of flat today," a trader in New York said. "There's a couple of trades this morning. Customers seem to have money. We're slowly setting up for any supply this week. Obviously, supply is very manageable."

Treasury yields have started the day a shade lighter, on positive economic indicators, a break from their continually strong bid over the past several trading sessions.

Indeed, the market has seen light calendars the past two weeks, as it typically does at this time of year. Last week, only $1.78 billion in new deals reached the market. The previous week saw just $10.8 million in new issues.

Potential long-term volume is expected to pick up this week, to an estimated $4.88 billion. More help may be on the way. The Bond Buyer's 30-day visible supply for Tuesday shows $7.83 billion planned.

Leading all deals this week, JPMorgan expects to price $775 million New York City Transitional Finance Authority tax- secured subordinate bonds. Retail order periods are expected Tuesday and Wednesday, followed by pricing Thursday.

Ramirez & Co., Inc. held preliminary pricing for $122.6 million of Philadelphia water and wastewater revenue refunding bonds. They are rated A1 by Moody's Investors Service, A by Standard & Poor's and A-plus by Fitch Ratings.

Yields ranged from 0.65% with coupons of 3.00% and 5.00% in a split maturity in 2016 to 4.67% with a 5.00% coupon in 2043. The bonds are callable at par in 2024.

The Municipal Securities Rulemaking Board showed light volume Monday, at $6 billion. But MSRB numbers also revealed that volume for dealer-to-dealer transactions continue to comprise 35% of all trading in 2014, Alan Schankel managing director at Janney Capital Markets, wrote in a research note. That compared with dealer-to dealer volume of just 20% last month and 22% in the fourth quarter of 2013, he added.

"Heightened dealer-to-dealer activity implies increased balance sheet commitment and perhaps stronger technical underpinnings to the municipal market with year-end tax selling behind," Schankel wrote.

Yields on the Municipal Market Data triple-A scale maintain a firmer tone Tuesday. Bonds maturing through the first 13 years on the yield curve are steady; thereafter, they're flat to two basis points lower.

The 10-year triple-A yield and the 30-year each lost three basis points, to 2.61% and 3.98%, respectively. The two-year yield held at 0.34% for a sixth consecutive session.

The Municipal Market Advisors benchmark triple-A scale saw yields fall Monday by as much as three basis points after 2015. The 10-year triple-A yield fell two basis points to 2.61%. The 30-year plummeted two basis points to 4.18%, while the two-year stayed at 0.33%.

Treasuries have started the day weaker. The 10-year yield has skipped up three basis points to 2.86%. The 30-year yield has risen two basis points to 3.79%, while the two-year yield has held steady at 0.37%.

In economic news, the Commerce Department reported Tuesday that U.S. December retail sales data posted modest gains to close out 2013 on a positive note.

December retail sales rose by 0.2%; sales excluding autos grew 0.7%, while ex-autos and gas increased 0.6%. The Commerce Department revised November and October sales levels and gains lower.

Still, the numbers mostly met economists' expectations. They are expected to generate a real GDP number of around 2%-to-3% for the fourth quarter.

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