The municipal market eased out of the garage and into first gear Monday, with a mix of stable and improving yields on modest activity in the secondary.
Tax-exempt yields appeared stronger, according to market gauges and trader sentiment, helped by a lack of new supply, anodyne credit headlines and a
"We did better today," a trader in California said. "But it was mostly just settling in. The calendar is small; with supply picking up next week, then we'll get a better sense of where we are."
Traders noticed strength in maturities in roughly the two- to eight-year range. But there weren't really any points of weakness on the yield curve. Institutions and retail investors participated in equal measure, the trader said.
"Institutions will get back into it as well; it depends on their cash flows," he said. "We hope they'll stop seeing withdrawals of money, and maybe some restored faith in the market."
The tax-exempt market "has more life to it than it did last week," a trader in North Carolina added. "You're seeing some stability throughout the curve. Some of our customer bid-wanteds today did receive firm bids. The market seems to be OK."
Issuers are holding their powder for later in the month. No large deals arrived Monday, and very few are expected this week.
Potential long-term volume for the week is expected to total $1.79 billion, up from sales of $10.8 million last week. That breaks down into $869.3 million scheduled for negotiated sale and $918.2 million set for auction among competitive deals, market estimates show.
Other market analysts, though, predict the calendar will weigh in around $2.5 billion this week.
JPMorgan is expected to price a $240 million deal for the University of Texas permanent university fund bonds, the largest on the negotiated calendar. It is expected to arrive as early as Tuesday. Also, Barclays plans to price $150 million of Massachusetts Development Finance Agency revenue bonds.
On the competitive side of the ledger, the San Francisco Unified School District is scheduled to auction $205 million on Thursday, while the New Jersey Educational Facilities Authority expects to auction $200 million of Princeton University revenue bonds on Wednesday.
The high-grade deals in the competitive market "are going to be bid very firm, I'd assume," the trader in North Carolina said. "Princeton is coming; that bid should be very firm As long as Treasuries continue to perform, which they probably will from a technical basis, it's going to drag the muni market along with it."
The Puerto Rico government on Thursday announced plans to sell an undetermined amount of long-term bonds in late January or in February, probably Puerto Rico Sales Tax Financing Corp. (COFINA) bonds. A trader in New Jersey said the market hasn't reacted negatively to the news.
"Bids have backed up a little bit, but not so much," he said. "There's still interest; you're seeing people bottom-fishing a bit. Their attitude is 'if you need to raise cash, then go ahead and hit my bid. If you don't, then don't.' They want to see if they can buy some stuff 100 basis points cheaper than where they normally can, but we're talking odd lots, not five-million-bond blocks."
Trades in the secondary market Monday were mostly stronger, according to data from Markit. Golden State Tobacco Securitization Corp 5s of 2033 fell four basis points to 7.72%
San Francisco Bay Area Rapid Transit District 5s of 2037 and New York State Liberty Development Corp. revenue 5.5s of 2037 each dropped two basis points to 4.16% and 5.03%, respectively.
Connecticut State Health & Educational Facilities Authority revenue 5s of 2028 and Ascension Parish, La., Parishwide School District general obligation 3s of 2024 each decreased two basis points to 3.80% and 3.32%, respectively.
For the final three weeks of December, trading volume faded predictably, Tom Weyl, director of research in municipals at Barclays, wrote in a report. It totaled $107 billion, or about $37 billion a week.
All told, trading volume, at $2.8 trillion in 2013, climbed somewhat from 2012 levels, and averaged approximately $54 billion a week. New and recent issues dominated trading during the span, Weyl added.
New York State Thruway Authority 2019s, with yields falling 16 basis points from issuance to 2.04%, comprised the most active cusips traded. They were followed by three cusips from the Foothill-Eastern Transportation Corridor Agency, as well as one each from the Long Island Power Authority-related Utility Debt Securitization and the Kentucky Public Transportation Authority.
Beyond new issues, Puerto Rico COFINA 2054 zeroes traded most actively, Weyl wrote. Other cusips included those from the Marathon Oil Corp, the Golden State Tobacco Securitization Corp and the Kaiser Credit Group.
Yields on the Municipal Market Data triple-A scale firmed across most of the curve by as much as two basis points. They declined the most between three and five years, and from 12 and 17 years.
Triple-A, tax-exempt two-, 10- and 30-year yields each closed Monday's session one basis point lower. They measured 0.34%, 2.78% and 4.19%, respectively.
Yields on the Municipal Market Advisors benchmark triple-A scale firmed across much of the curve Monday by as much as two basis points. The 10-year triple-A yield slipped one basis point to 2.78%.
The 30-year also slid one basis point to 4.40%, while the two-year declined two basis points to 0.35%.
Treasury yields strengthened on Monday. The 10-year yield fell below the 3.00% barrier, dropping three basis points to 2.97%. The 30-year yield also decreased three basis points to 3.90%. The two-year held steady at 0.41%.
