The blizzard that slammed into the east coast Tuesday managed to squelch a budding rally in the municipal bond market.
The relentless snowfall prompted more than a few market participants in states affected to head home early, traders said. "Things started off quiet, then picked up a bit, and then just went dead," a trader in New York said. "This storm scared some people off. I heard some people going home early and I'm seeing bid-wanteds drop off. Definitely, the weather took its toll on the day here."
Bids in the six-to-16-year range did well, the trader added.
"That's where people want to buy," he said. "I'm finding I have to sharpen my pencil a little more to win those bids."
Around noon, trading in maturities at the long end of the municipal bond yield curve gave munis a somewhat stronger tone. The market appeared to be
Shorter maturities continued to struggle, though, a trader in Chicago added.
"The front end is just so ultra-tight; the ratios are very ugly," he said. "The market's slightly firmer, if at all. It's definitely not weaker. We continue to grind higher, but it's not anything earth-shattering."
Market participants showed a demand for paper throughout the day, the trader in New York said.
Muni sales this week are expected to continue their measured rise. Anticipated new issue volume should weigh in at $5.00 billion, against $3.81 billion last week.
This breaks down into $3.30 billion scheduled for negotiated sale and $1.70 billion competitive.
Bank of America Merrill Lynch on Wednesday is expected to price a $1 billion taxable issue for Port Authority of New York & New Jersey, structured as a bullet maturity in 2046.
Barclays priced for retail $650.4 million of New York State Thruway Authority general revenue bonds in the negotiated market. They are rated A2 by Moody's Investors Service and A by Standard & Poor's.
Yields ranged from 0.69% with coupons of 4.00% and 5.00% in a split maturity in 2017 to 4.70% with a 4.625% coupon in a split maturity in 2044. Credits maturing in 2015 and 2016 were offered in a sealed bid.
Those bonds maturing from 2026 through 2028 and from 2030 to 2034, as well as some in 2044, were not offered to retail. Pricing for institutions should follow Wednesday.
Retail investors appear to be waiting to see how the New York Thruway loan performs, the trader in Chicago said. "It looks OK, considering there aren't a lot of spread credits out there," he said.
"New York Thruway did OK," the New York trader added later in the day. "It priced pretty decently."
On the competitive side of the ledger, the state of Washington on Wednesday plans to auction $355.1 million of various purpose general obligation bonds, as well as $273.9 million of motor vehicle fuel tax GOs.
"We're not seeing a lot of follow-through, so far," the Chicago trader said. "But we do have Washington coming competitively tomorrow, so hopefully that will set the tone for things going forward."
Some mid-range competitive issues emerged on the day. Citi won $83.5 million of College Station, Texas, Independent School District unlimited tax school building bonds. The Texas Permanent School Fund guarantee program helps win the bonds triple-A ratings. The bonds hold underlying ratings of Aa2 by Moody's and AA-minus by Standard & Poor's and AA-plus by Fitch Ratings.
Yields ranged from 0.21% with a 3.00% coupon in 2015 to 4.10% with a 4.00% coupon in 2039.
B of A Merrill won about $70 million of Mankato, Minn., Independent School District school building GOs for the state's school district credit enhancement program. The bonds are rated Aa2 by Moody's and AA-plus by Standard & Poor's.
Yields ranged from 0.20% with a 4.00% coupon in 2015 to 3.96% with a 4.00% coupon in 2034.
Demand, as represented by muni bond mutual fund flows, returned to the marketplace, at least for a week. Those muni bond funds that report flows weekly recorded $103 million of inflows for the week ended Jan. 15, Lipper FMI numbers showed, marking the end of 33 continuous weeks of outflows.
To add to the demand, dealers across the marketplace have been stocking up on munis after starting 2014 with unusually low inventories, Matt Fabian, managing director at Municipal Market Advisors, wrote in a research report. This should have an effect on the calendar. Issuers may opt to "front-loan borrowing plans and even re-start refunding transactions," he added, assuming volume builds to the end of the month, as it typically does during this time of the year.
"Note that municipal outperformance of Treasuries — producing a 10-year muni-Treasury ratio of 91.8% on Friday versus a fourth quarter 2013 average of 99.6% — has also reduced negative arbitrage," Fabian wrote. "If continued, this could mean a (limited) return of advance refundings and a new, desperately sought supply of pre-refunded paper."
Trades in the secondary market showed mostly firming Tuesday, according to data provider Markit. Yields on Mesa, Ariz., GO 4s of 2027 and Buckeye Ohio Tobacco Settlement Financing Authority 5.75s of 2034 each dropped four basis points to 8.16% and 3.49%, respectively.
Yields on Pennsylvania GO 5s of 2018 and Puerto Rico Sales Tax Financing Corp. (COFINA) revenue 6s of 2042 each fell two basis points to 1.09% and 8.13%, respectively. But yields on New Jersey State Transportation Trust Fund Authority 5s of 2028 climbed two basis points to 3.88%.
Yields on the Municipal Market Data triple-A scale spent Tuesday flat across the curve.
The 10-year triple-A yield held at 2.59%, the 30-year at 3.90% and the two-year at 0.34% for an 11th consecutive session.
Yields on the MMA benchmark triple-A scale both firmed and softened at the far end of the curve Tuesday by a basis point in either direction.
The 10-year triple-A yield held at 2.59%. The two-year remained at 0.34%, while the 30-year increased one basis point to 4.12%.
Treasury yields ended mostly flat. The 10-year yield remained at 2.83% and the two-year held at 0.39%, while the 30-year yield fell two basis points to 3.74%.
