Market Post: With Scant Volume Expected, Munis Look to Treasuries, Last Week’s Issuance, for Direction

NEW YORK — The municipal bond secondary market started the week mostly still on holiday Tuesday morning.

With less than $500 million traded at press time, the market’s engine turned over quietly. There were a couple of small customer bid-wanted lists focusing on a period of 10 years and in, said a trader in New York. Activity is expected to pick up, indubitably, but not by a tremendous amount, he added.

“With the drop-off in the primary new issuance, at around $1.3 billion,” the trader said, “most people will be focused on the remaining supply left over from the previous week’s new issuance, and definitely looking at the Treasury market for some type of rate directional at this point.”

Muni yields are steady across the curve to start the week. Both the benchmark 10- and 30-year muni yields inched up one basis point to end last week at 2.76% and 4.36%, respectively. Each yield has risen 13 basis points in a week. The two-year yield stood, once again, at 0.42%, holding for the 15th straight session.

For the second session in a row, Treasury yields started the day lower. The 10-year yield fell four basis points to 3.16%. The two-year yield slipped three basis points to 0.46%. The 30-year yield also dropped three basis points to 4.37%.

As the New York trader noted, the holiday-shortened week will see far less issuance than it did the previous week. Issuers expect to sell an estimated $1.3 billion of municipal bonds this week, against a revised $8.2 billion that was sold last week. Last week’s revised number came in higher than the original estimated figure of $5.62 billion.

The largest bond deal in the negotiated market arrives Thursday. RBC Capital Markets is underwriting $365.5 million of general obligation bonds for the San Diego Community College District.

JPMorgan is underwriting the week’s second-biggest deal. Dallas is issuing $236.3 million of waterworks and sewer system revenue refunding bonds.

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