NEW YORK – The California municipal market was unchanged to slightly firmer Monday amid light to moderate secondary trading activity.
“There wasn’t a ton of trading, but business was getting done,” a trader in Los Angeles. “Still, most people seemed to be on the sidelines for now. The tone was a little bit firmer, but we’re pretty much unchanged.”
The Municipal Market Data triple-A 10-year scale fell two basis points Monday to 2.97%, the 20-year was unchanged at 4.26%, and the scale for 30-year bonds remained at 4.69%.
“Another month of re-investment is upon us and so is another month of light primary issuance,” wrote Randy Smolik in the daily MMD commentary. “Despite lackluster trading, a reach for high-grades in the belly of the curve still was evident.”
“Today's secondary did not provide much of an array of paper to buy,” Smolik continued. “It is logical that many buyers were sidelined because of the lack of offerings, waiting to be more active once supply is priced like the $300 million Louisiana GO competitive loan selling Tuesday. But despite the thin secondary, some buyers did capitulate.”
Monday’s triple-A muni scale in 10 years was at 86.8% of comparable Treasuries and 30-year munis were at 104.5% according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 109.8% of the comparable London Interbank Offered Rate.
Treasuries was somewhat mixed Monday. The benchmark 10-year note was quoted recently at 3.42% after also opening at 3.41%. The 30-year bond was quoted recently at 4.49% after opening at 4.50%. The two-year note was quoted recently at 0.70% after opening at 0.72%.
In a weekly report, George Friedlander, a municipal strategist at Citi, wrote “the municipal bond market continued the powerful rally back from the peak in yields in mid-January.”
“The ‘positive feedback loop" that pushed yields ever higher for roughly ten weeks through January 14 has been broken, leaving those who feared the worst standing on the sidelines in many cases,” he wrote. “In the longer-term maturity range we favored at the market bottom, yields on triple-A paper are down sharply: nearly 50 basis points in 20 years, 43 basis points in 15 years. We are thus suggesting a bit more caution now, but would still put cash to work selectively.”
In economic data released Monday, personal consumption increased 0.2% in January as income rose 1.0%, the largest gain in 20 months.
Core PCE, which excludes food and energy costs and is the Federal Reserve’s preferred measure of inflation, increased 0.8% in January from the year earlier and was revised higher for December to a 0.8% rise from a 0.7% gain. The figure is still a record low on data stretching back to 1960.
The monthly PCE gain was the smallest since June. The core PCE rose 0.1% in January.
Economists expected incomes and expenditures would both rise 0.4% for the month, according to the median estimate from Thomson Reuters. The core PCE rate was expected to gain 0.1%.
Pending home sales slipped 2.8% to a reading of 88.9 in January. Economists polled by Thomson Reuters predicted a 2.2% increase for the index.
Activity in the California new-issue market was light Monday.
Previous Session's Activity
The most actively traded security in the state yesterday insured Santa Rosa High School District 5s of 2028, which traded 56 times at a high of 98.284 and a low of 94.373.
