Market Close: Eerily Quiet Finish for Munis

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It was an eerily quiet close to the week for the municipal market on Friday as traders said there was more of a lull than usual as they looked ahead to next week's unemployment numbers.

Traders said the market felt weaker than Thursday by up to three basis points across the board and reported an overall lack of interest.

"It's definitely a squeamish feel to the market," a New York trader said on Friday. "Everyone just shut down and is waiting for next Friday's unemployment number, which could be pretty significant."

Another New York trader said the mood was dreary and uneventful.

"I didn't realize Halloween was that big of a deal and it seems like a lot of municipal bond traders — the children that they are — are out trick-or-treating," the second New York trader said.

He said he observed trades and quoted bid sides "cheaper than yesterday" as a result of the poor market attendance, but had hope for renewed interest judging by next week's calendar, which is estimated to be near $9 billion.

Benchmark municipal yields firmed by the end of the week at 2.07% in 10 years and 3.01% in 30 years, after beginning the week at 2.00% and 2.95%, respectively, according to MMD.

The Treasury market ended stronger as the 10-year bond closed at a 2.33% and the 30-year at a 3.07% after starting the week at 2.26% and 3.04%, respectively, according to Bloomberg.

In addition to the jobs data the coming week will bring $8.8 billion of new volume, based on estimates by Ipreo LLC and The Bond Buyer.

Though larger than the revised $6.60 billion that came last week as reported by Thomson Reuters, the calendar may not be enough to prompt sleepy investors, the New York trader said.

"There are not a lot of players right now," he said. "Until we have some significant supply here, it's not going to affect us."

Topping the list of negotiated deals will be a $700 million New York City Transitional Finance Authority sale of future tax secured bonds and a $500 million North Texas Tollway Authority sale of first and second tier bonds.

Those deals will come in the shadow of last week's $1.6 billion New York Liberty Development Corp. sale of nonrated bonds for the 3 World Trade Center Tower Project — which surprised traders by strengthening by 100 basis points just two days after the pricing.

The long bonds were quoted as trading at a 6.22% on Thursday in the secondary market after being priced at 7.25% on Tuesday, according to traders.

In other large deals priced this week, the Illinois State Toll Road Authority revenue sale was priced with 5% coupons ranging in yield from 2.82% in 2027 to 3.53% in 2039 at a time when the generic, triple-A general obligation bond in 2039 yielded 2.89%, according to MMD.

The bonds are rated Aa3 by Moody's, and AA-minus by Standard & Poor's and Fitch Ratings.

That deal was well received and the issuer was able to achieve lower financing costs than originally expected for its 15-year capital program, according to authority officials.

In the fund industry, meanwhile, high-yield mutual funds recovered this week, while the assets of all weekly reporting funds suffered outflows for the third consecutive week, according to Lipper FMI.

Inflows of $20.8 million boosted high-yield assets to $47.98 billion from $47.96 billion the week before.

The assets of all weekly reporting municipal bonds dropped to $313.9 billion from $314.0 billion, after inflows of $37 million as of Oct. 29, following losses of $41 million last week.

Major news involving the municipal industry this week came out of troubled municipalities in California and Puerto Rico on Thursday.

The bankrupt city of Stockton, Calif., received a green light from U.S. Federal Bankruptcy Judge Christopher Klein to end its more than two-year foray in bankruptcy protection.

The plan means that the city can restructure its debts and employee pensions administered by California Public Employees Retirement System would not have to take a haircut.

Puerto Rico officials, meanwhile, unveiled a plan to overhaul the territory's taxes in 2015 and also outlined recently-introduced legislation to financially shore up the island's highways and transportation authority. Under the reforms, Puerto Rico would replace its 7 percent sales tax with a broad-based goods and services tax, which will evolve into a value-added tax levied at each level of the distribution chain, said GDB President Melba Acosta-Febo.

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