It was a typical quiet Monday as yields remained unchanged across most of the curve.
Weekend laziness crept into Monday’s trading session as most market participants opted to wait on the sidelines until bigger deals come to market later this week.
“It was fairly quiet today,” said a trader in Los Angeles. “We’re feeling a little bit better but there was not enough activity today to improve levels. I think everyone is looking at bigger deals coming this week.”
The trader added that the muni market is looking to Europe for direction and seeing how that will affect rates here. “To some degree we are a little nervous on where we’re heading,” he said. “Some deals coming lately to the market have not done as well as people would like, so people are being more protective.”
Tax-exempt yields were holding steady in the early parts of the curve and rose slightly in the later maturities, according to the Municipal Market Data scale. Yields were unchanged through 2025 and rose one basis point after that.
The benchmark 10-year muni yield held steady at 2.43%. It remained 46 basis points above the record low it reached on Sept. 23.
The two-year yield held steady at 0.45% for the ninth consecutive trading session. The 30-year finished Monday at 3.72%, up one basis point.
At Monday’s close, Treasury yields were mixed. Yields at the front end of the curve rose while yields on the longer end fell. The benchmark 10-year Treasury yield rose one basis point to 2.23%, and the two-year yield rose one basis point to 0.29%. The 30-year fell one basis point to 3.27%.
“Residual balances from recent bond deals, increasing outlook for supply, and light flows led to limited action in the tax-exempt municipal market on Monday,” MMD analyst Domenic Vonella wrote in his research note.
In the primary market, Citi priced $226.4 million of Pennsylvania Turnpike Commission revenue bonds in two series. Yields for the first series, $126.5 million of turnpike subordinate revenue bonds rated A3 by Moody’s Investors Service and an equivalent A-minus by Standard & Poor’s and Fitch Ratings, ranged from 1.35% with a 3.0% coupon in 2013 to 5.0% coupon to par in 2036.
Bonds maturing in 2012 were offered in a sealed bid. Retail pricing was not available for credits maturing in 2024, 2025, 2031 and 2041.
Yields for the second series, $99.8 million of motor license fund-enhanced subordinate special revenue bonds, rated Aa3 by Moody’s and AA by Fitch, ranged from 0.75% with a 2.0% coupon in 2013 to 4.48% with a 4.45% coupon in 2041. Credits maturing from 2026 to 2031 were not offered in retail pricing.
In the secondary market, last week’s leftovers made headlines. “Overall, there is more activity going on than a typical Monday,” said a trader in Florida, adding that there was a lot of activity in the 2017-19 range of the Hudson Yards Infrastructure Corp. Market participants are “rotating into more desired coupons” on that New York deal.
But, the trader added, other markets are weak. Both the New York Transitional Finance Authority and Dormitory Authority of the State of New York personal income tax credits are trading wider than usual. “They are definitely on the historically wider side, so New York credits are seeing drifts to wider spreads,” the trader said. On the shorter end of the curve, high-grade paper — double-A and up — was seeing “a good spark of interest,” the trader added.
New York deals were making the headlines with other traders as well. “Drift in serials beyond the 10- to 11-year range seemed most evident in New York names,” MMD analyst Randy Smolik wrote in a research note.
“Some of the drift was credit-spread widening as the muni market grapples over a tax-exempt calendar that is diverse in major issues, unlike last week’s supply concentrated on three major deals,” he said. “But we have noticed that high-grade markets in general have only seen spotty support beyond 2022.”
Vonella said New York credits may have traded weaker Monday on speculation of a higher current and forward new-issue calendar for New York State.
In the estimated $7.37 billion new-issue market, no big-name deals showed up Monday, but bigger issues are expected later this week.
The negotiated calendar will see $5.86 billion with three large deals scheduled for later in the week. The Massachusetts School Building Authority is expected to lead the way Thursday with a $600 million issue of Series 2011B dedicated sales tax bonds.
The Chicago Transit Authority Wednesday plans to issue $559.7 million of sales-tax receipt revenue bonds and capital-grant receipts revenue bonds. And California is set to come to market Wednesday with $500 million of economic recovery refunding bonds.
The competitive market will see $1.51 billion this week. The largest deals include Illinois selling $300 million sales tax refunding debt, expected Tuesday. On Wednesday, the Port Authority of New York and New Jersey is planning to come to market with $400 million of refunding bonds.
“Competitive bidding process can currently provide issuers with a slightly better financing rate as underwriters vie for quality, upper tiered credits and higher rankings,” Vonella noted. “But with new-issue supply picking up from the anemic rate earlier in the year, distribution of competitive deals has lately been difficult, forcing underwriters to compete for customer attention.”
But some market participants say the new issues will decelerate as the end of the year approaches. “As the primary calendar begins to slow, the theme of negative net supply should reemerge as we head into year-end, and bond redemptions should outpace new-money issuance,” wrote John Hallacy, muni research strategist at Bank of America Merrill Lynch. “This should add support to levels in the muni market, in addition to the high muni ratios to Treasury, which continue to persist.”