NEW YORK — The California municipal market was unchanged to slightly firmer Tuesday amid somewhat light secondary trading activity.
"We're settling into holiday mode in the secondary," a trader in Los Angeles said. "You can pick up a basis point or two here and there, but activity is pretty light and we're mostly unchanged."
The Municipal Market Data triple-A 10-year scale declined two basis points Tuesday to 3.15%, the 20-year scale decreased two basis points to 4.37%, and the scale for 30-year debt remained unchanged at 4.66%.
Tuesday's triple-A muni scale in 10 years was at 95.2% of comparable Treasuries and 30-year munis were at 105.4%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 113.1% of the comparable London Interbank Offered Rate.
The Treasury market was somewhat mixed Tuesday. The benchmark 10-year note was quoted recently at 3.32% after opening at 3.34%. The 30-year bond was quoted recently at 4.42%, after opening at 4.44%. The two-year note was quoted recently at 0.62% after opening at 0.60%.
In a commentary, Alan Schankel, managing director at Janney Capital Markets, wrote that Sunday's 60 Minutes segment on the municipal bond market, which featured analyst Meredith Whitney and New Jersey Gov. Chris Christie, was the latest in a series of 2010 stories decrying the financial health of municipal bond issuers.
"Gov. Christie said U.S. states face a 'day of reckoning' and Ms. Whitney predicted 50 to 100 sizable defaults among municipal issuers," he wrote. "Like most areas of the nation's economy, state and local governments are stressed, primarily a result of sharp declines in income and sales tax revenue — states — and property tax revenue — towns and cities. The part of the story missing from most accounts is the action state and local governments are taking to address these challenges, with Gov. Christie's New Jersey showing the way."
States, counties, cities and towns around the country have tightened belts, Schankel wrote, adding that municipal issuers enjoy much more flexibility in addressing budget issues compared to corporations, which "must compete or die."
"There is no question that 2011 will be a challenging year for many states and municipalities, but defaults on safe sector municipal credits — general obligation and essential purpose issues such as water and sewer revenue bonds — will be few, primarily reflecting isolated situations," he wrote. "As a sector, municipal debt is one of the safest. Historical default and bankruptcy rates are well below those of like rated corporate bonds for example, and given the general creditworthiness and financial flexibility of most governmental issuers, we believe state and local government will weather this financial storm well."
The economic calendar was light Tuesday.
Previous Session's Activity
The most actively traded security in the state yesterday was California 3s of 2011, which traded 65 times at a high of 101.038 and a low of 99.643.
