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Market Post: Waiting for New Triple-A Deals

JUL 26, 2011 10:43am ET
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NEW YORK — The municipal market is revving up for the week’s new deals, particularly those coming from issuers with triple-A ratings. The secondary is off to a subdued start, according to a trader in New Jersey.

“It’s pretty quiet right now,” he said. “I don’t think the Street’s long much. The wirehouses are stocking enough to keep the account execs busy and happy. No one’s loading the boat expecting a rally here.”

The market has one eye toward the week’s primary issuance; it anticipates about half the volume of new issuance it saw last week. About $4.1 billion in new deals is expected, after $8.3 billion came to market last week, the largest volume for new debt offerings in 2011.

The industry will watch for the institutional pricing of $100 million in Maryland general obligation bonds. Pricing was relatively aggressive in Monday’s retail offering. Moody’s Investors Service last week placed Maryland and four other triple-A rated states on review for a possible downgrade.

Maryland will probably get the institutional deal on the MMD scale, but not through the scale, the New Jersey trader said. And regardless of what the rating agencies do to the five states, people that own triple-A state GOs won’t dump them just because they go to double-A or double-A-plus, he added.

“But it will probably cost them a couple of basis points to get the deals done when new deals come to market,” he said.

Muni yields were steady across most of the curve Tuesday, according to the Municipal Market Data scale. Bonds maturing between 2024 and 2031 were flat to one basis point weaker.

The benchmark 10-year tax-exempt yield remained unchanged Monday at 2.68% for a third consecutive trading session. The two-year yield held once again at its low for the year, 0.40%, for a 10th straight session. The 30-year yield rose one basis point on the day to 4.35%.

Treasury yields were unchanged across most of the curve. The 10-year yield held at 3.01%.

The 30-year yield hovered at 4.32%. The two-year yield fell two basis points to 0.41%.

In economic news, homes sales saw a mixed picture, but mostly more negative news. Prices for the 10- and 20-city composites were up 1.1% and 1.0%, respectively, in May over April, according to the S&P Indices for its S&P/Case-Shiller Home Price Indices which Standard & Poor’s released Tuesday. It was the second consecutive month of increase in prices for the 10- and 20-city composites.

And 16 of the 20 metropolitan areas and both composites posted positive monthly increases. On an annual basis, though, Washington, D.C. was the only metropolitan area with a positive rate of change, up 1.3%. The remaining 19 metropolitan areas and the 10- and 20-city composites were down in May 2011 versus the same month last year.

In addition, the Commerce Department reported Tuesday that new home sales fell 1.0% to a 312,000 annual rate in June on a seasonally adjusted basis. But sales were up 1.6% from June 2010.

Sales in May were revised downward to 315,000 from the 319,000 initially reported. Economists polled by Thomson Reuters expected a higher number for June sales. They calculated about a 320,000 annual sales rate, according to the median estimate.

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