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Market Post: Muni Yields Push Lower as Market is Hungry for New Issuance

JUL 11, 2011 10:46am ET
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NEW YORK — The week’s new inventory can’t seem to reach the muni market fast enough. One trader in Florida said there is little product anywhere. “There are fewer bonds than usual,” he said. “It’s hard to find anything to sink your teeth into.”

Muni yields have been following Treasuries lower. But they aren’t too low for the market to absorb the new volume, wrote Tom Kozlik, a muni credit analyst for Janney Capital Markets.

Muni yields started the week mostly lower across the curve. They remained steady for maturities through 2013, according to the Municipal Market Data scale. They were flat to two basis points lower for bonds maturing in 2014. Yields for the rest of the curve fell one to three basis points.

The benchmark 10-year muni yield retraced Thursday’s losses, and then some. It fell three basis points to close out the week at 2.74%. The 30-year yield lost two basis points, falling to 4.37%. The two-year yield, as is its wont, ended the week unchanged at 0.42% for the 19th straight session.

Treasury yields dropped Monday morning, picking up where they left off following the release of an unequivocally lackluster employment report to end the week. The 10-year yield fell six basis points to 2.96%, moving solidly below 3.00%.

The two-year yield slipped one basis point to 0.39%. The 30-year yield declined four basis points to 4.25%.

After the holiday-shortened week, new issuance should return to June’s volume levels, when the market averaged more than $5 billion a week in new product.

Muni bonds to be sold this week are expected to total $5.3 billion, versus a revised $878.4 million last week.

New issuance has been averaging $3 billion a week for most of the year. That’s a decline of roughly 44% compared with the same period in 2010.

Leading the charge, Wells Fargo will price $760 million mostly tax-exempt offering from the Dormitory Authority of the State of New York. A retail order period will be held on Tuesday.

JPMorgan will price $600 million Michigan State Building Authority revenue and revenue refunding bonds. A retail order period will be held Monday.

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