The municipal market was extremely quiet Monday as a blizzard that buried much of the Northeast kept many participants at home and exacerbated what already figured to be a lightly traded session.
"The market is dead," a New York trader said. "This is a quiet week to begin with, and when you throw a blizzard like this on top of it, you have literally nothing happening."
Tax-exempt yields were slightly elevated despite the inactivity.
"It feels like we should be a couple basis points cheaper, particularly out long," a trader in Los Angeles said. "Though it's really difficult to quantify that just because there's so little trading."
The Municipal Market Data triple-A 10-year scale increased one basis point Monday to 3.15%, the 20-year scale was up one basis point to 4.38%, and the scale for 30-year debt was also elevated one basis point to 4.67%.
In the daily MMD commentary, Randy Smolik wrote: "Holidays and an East Coast Nor'easter thinned Northeast dealer desks, causing illiquidity and caution," but the MMD curve showed only slight cuts because "the thin trading environment made it hard to determine if the selling pressure was significant."
Monday's triple-A muni scale in 10 years was at 94.0% of comparable Treasuries and 30-year munis were at 105.7%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 112.3% of the comparable London Interbank Offered Rate.
The Treasury market was somewhat mixed Monday. The benchmark 10-year note was quoted near the end of the session at 3.34% after opening at 3.39%. The 30-year bond finished at 4.42% after opening at 4.47%. The two-year note was quoted near the end of the session at 0.67% after opening at 0.65%.
The Treasury Department Monday auctioned $35 billion of two-year notes with a 5/8% coupon at a 0.740% yield, a price of 99.77. The bid-to-cover ratio was 3.71. The Federal Reserve banks also bought $1.75 billion for their own account in exchange for maturing securities.
Smolik also wrote: "The concession in Treasury market levels because of $99 billion in note auctions scheduled this week breeds uncertainty for the municipal market. Treasury traders drifted levels late last week once the Fed had finished their coupon pass purchases."
The municipal bond market will be asked to digest a single small deal this week as a welcome lull in new supply continues through the holidays.
The entire new-issue calendar this week consists of a solitary $525,000 issue from the Carter County, Okla., Independent School District, which is expected to sell Tuesday in the competitive market.
The bonds, which are not callable, mature from 2014 to 2016.
The light slate of new issuance follows a $3.4 billion menu last week, according to The Bond Buyer and Ipreo data. Eight billion dollars is about typical.
The light supply marks a respite for municipal participants, who were buffeted by several turbulent weeks in November and December.
An inundation of new supply coupled with a sell-off in Treasuries has led to a return of negative 4.6% for municipals so far in the fourth quarter, according to a Standard & Poor's index tracking the sector.
Municipalities have sold $130.39 billion of debt so far in the final three months of 2010, according to Thomson Reuters — the second-heaviest quarterly issuance in muni bond history.
Heavier issuance was recorded in the second quarter of 2008, when municipalities refunded out of failed auction-rate securities and sold variable-rate demand obligations in droves.
Thursday is the final day of trading in the current quarter, which has been marked by some mammoth weeks of issuance. Municipalities floated $14.7 billion of bonds during the week ended Nov. 19 — the second-highest total in at least five years, according to Bloomberg LP.
The fourth quarter also saw weeks with issuance of $13.2 billion, $12.1 billion, and $11.5 billion.
Most market watchers expect light issuance to continue into the beginning of 2011, as it is typical for municipal issuers to ease back on debt sales early in the year.
Municipal bond sales in the first quarter have averaged $52.7 billion since the early 1980s, according to Thomson Reuters. That compares with an average of about $67 billion for second quarters, $57 billion for third quarters, and $68 billion for fourth quarters.
Chris Mauro, head of U.S. municipals strategy at RBC Capital Markets, wrote: "Even grizzled veterans of the municipal bond industry have to be taken aback somewhat by the recent 'all munis, all the time' coverage by both the print and broadcast media."
"Few market participants can remember a time in which the industry has received this much attention," he wrote. "We are not really surprised at the negative news flow, but find it intriguing that all of this chatter is circulating in December rather than in the early 2011 start of the state budget season. This news flow will only continue, as what we anticipate will be a particularly nasty fiscal 2012 budget season is sure to generate more discussion about the stressed fiscal condition of state and local governments."
Mauro also wrote: "Not much of what has by now become rather repetitive reporting on state and local fiscal problems represents new information."
"Ironically, it is because states have balanced budget requirements that tortured budget negotiations and the resultant flaming headlines materialize in down years," he wrote. "Additionally, muni market participants are well aware of the constitutional and statutory protections afforded general obligation debt. … Consequently, the market has essentially ignored the recent wave of negative news, as muni yields and muni-treasury ratios remained relatively flat [last] week."
The economic calendar was light Monday.