Market Post: Muni Market Has Yet to Start its Engine

Light activity and few buy orders have held municipal bond levels in place to start Tuesday's session.

Traders await the week's manageable supply and note investors' cash flows as positives for the market. But a lack of action Tuesday is stalling the market.

"From what I can see from Friday to today, I'm not seeing any real strength or weakness anywhere," a trader in New York said. "New issues look pretty manageable. It seems like there's still a lot of cash out there, so supply could be healthy for the market. But right now, there's not a whole lot out for the bid yet."

Muni sales this week are expected to continue their measured rise this week. Anticipated new issue volume should weigh in at $5 billion, against $3.8 billion last week.

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 plans to price $650.4 million of New York State Thruway Authority general revenue bonds in the negotiated market. A retail order period is expected Tuesday, followed by pricing one day later.

In 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.

Demand, in the form of municipal bond mutual fund flows, returned to the marketplace. 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.

The muni market begins this holiday-shortened week on a firm technical footing, Alan Schankel, managing director at Janney Capital Markets, wrote in a research brief.

Tailwinds for the market include "manageable new issue supply, a 20- to 30-basis-point rally since Jan. 3, the lowest municipal-to-Treasury ratios since last June - 92% 10-year and 104% 30-year - and after 33 weeks of outflows, stabilization of mutual fund flows, which Lipper reported as marginally positive in the week ending Jan. 15."

Yields on the Municipal Market Data triple-A scale had yet to be updated at press time. On Friday, they closed down as much as three basis points on bonds with maturities beyond 2030. Those in the front and intermediate part of the curve were down by as much as one to two basis points, respectively.

The 10-year triple-A yield decreased two basis points Friday to 2.59%. The 30-year fell three basis points to 3.90%, while the two-year held at 0.34% for a 10th straight session.

Yields on the Municipal Market Advisors benchmark triple-A scale mostly firmed, falling across most of the curve by as much as three basis points.

The 10-year triple-A yield slipped one basis point to 2.59%. The two-year held at 0.34%, while the 30-year decreased three basis points to 4.11%.

Treasury yields are mixed thus far Tuesday. The 10-year yield has inched up one basis point to 2.84%. The 30-year yield ticked down one basis point to 3.75%, while the two-year also edged lower one basis point to 0.38%.