NEW YORK – The California municipal market was unchanged to slightly firmer Tuesday in light to moderate secondary trading.
“The activity level on the Street is slowly returning to a more normal level now that we’re finding ourselves further and further removed from the holidays,” a trader in Los Angeles said. “The new-issue calendar is still completely barren, but that will pick up as January progresses. Today, we’re better maybe a couple basis points in the intermediate maturities, but it’s still somewhat quiet.”
The Municipal Market Data triple-A 10-year scale fell three basis points Tuesday to 3.18%, the 20-year scale was unchanged at 4.47%, and the scale for 30-year debt held at 4.68%.
In the daily MMD commentary, Randy Smolik wrote that dealers are getting anxious to own bonds around the 10-year range as the secondary remains thin and primary supply could be slow to pick up its pace.
“In thin markets, wide spreads between early to mid and late-dated paper of the same year provide an opportunity as market focuses on January yield after the MMD roll,” he wrote. “Potential sell pressure out long keeps trading relaxed in longer serial and dollar bond sectors. Treasuries showed a steeper curve as well.”
Tuesday’s triple-A muni scale in 10 years was at 94.9% 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 110.9% of the comparable London Interbank Offered Rate.
The Treasury market showed some losses Tuesday. The benchmark 10-year note was quoted recently at 3.33% after also opening at 3.33%. The 30-year bond was quoted recently at 4.42% after opening at 4.40%. The two-year note was recently quoted at 0.63% after opening at 0.59%.
Municipalities will continue their hiatus from borrowing money this week as they are once again slated to sell a meager amount of new debt.
State and local governments are scheduled to sell just $723.6 million of bonds this week, according to The Bond Buyer and Ipreo data, an uncommonly small amount of debt.
This is the supply lull municipal market participants were looking forward to during the paroxysm of bond sales in the fourth quarter. A $131.2 billion flurry of debt issuance in the fourth quarter helped propel the municipal bond market to a record $431 billion of issuance in 2010.
In a commentary, Alan Schankel, managing director at Janney Capital Markets, wrote that “we will be reading much of deficits, unpalatable service cuts, exorbitant fee increases and tax bumps in coming weeks and months as new administrations and legislatures face the economic realities of post recession government.”
“We continue to caution against panic in the face of news headlines,” he wrote. “Times are and will continue to be tough, but even the poster children for distressed states such as Illinois and California have very low chances of missed debt service payments. The relative yields of these states make for interesting considerations: based on MMD benchmark yields, Delaware yields have risen 36 basis points to 3.16% since Dec. 1, California yields also rose 36 basis points, to 4.41%, while Illinois, the most troubled of state, saw a yield increase of 71 basis points to 5.26%.”
In the new-issue market Tuesday, Wells Fargo Securities priced $80.3 million of debt for the Maine Municipal Bond Bank.
The bonds mature from 2011 through 2031, with yields ranging from 0.50% with a 3% coupon in 2011 to 4.72% with a 5% coupon in 2031.
The bonds, which are callable at par in 2020, are rated AAA by both Standard & Poor’s and Fitch Ratings.
In economic data released Tuesday, factory orders increased 0.7% in November as orders excluding transportation jumped by the largest amount in eight months.
Orders excluding transportation rose 2.4%, the largest increase since March. Orders for transportation equipment fell 11.1% as auto orders dropped 1.8%. Factory orders excluding transportation have increased for four straight months.
Economists expected factory orders would increase 0.3%, according to the median estimate from Thomson Reuters. Orders in October were revised higher to a decrease of 0.7% from a 0.9% drop reported last month.
Previous Session's Activity
The most actively traded security in the state yesterday was California 5s of 2027, which traded 29 times at a high of 99.221 and a low of 95.888.
