NEW YORK – The California municipal market was flat to slightly weaker Monday, as losses in the taxable market weighed on lightly-traded tax-exempts.
Taxable yields have been rising for the past several sessions, and Friday’s drop in the unemployment rate also sent signals that the economy is recovering. Municipals, though cheapening somewhat, thus far have not seen a comparable sell-off due to a light new-issue calendar and continued interest from crossover buyers due to relative value.
In a note to investors, Daniel Berger, strategist at Thomson Reuters, wrote that the staggering outflows from muni bond mutual funds seen over the past three months mostly represents smaller retail investors, who typically chase performance and returned to stocks given recent returns and bad press tax-exempts have received. However, Berger noted, this hasn’t seemed to extend to high net-worth retail investors, who typically employ a buy-and-hold strategy.
“We are somewhat encouraged by stories that have indicated that these investors are generally not spooked by headlines created by municipal bond doomsayers and they have kept their portfolios in tact,” Berger wrote. “Another encouraging sign is that the rate of selling from municipal fundholders has temporarily slowed down during the past two weeks.”
The Municipal Market Data triple-A 10-year scale was unchanged Monday at 3.38%, the 20-year scale held at 4.61%, and the scale for 30-year bonds remained at 4.92%.
In the daily MMD commentary, Randy Smolik wrote that weaker adjustments were seen in the short end of the curve, due to a combination of selling pressure from late Friday and block trades from Monday.
“The pressure could be setting up for the short-weighted South Carolina GO loan that sells Wednesday,” he wrote. “Treasury notes weren't fairing that well either, feeling heavy most of the session as the taxable market looked to bid on $32 billion of Treasury three-year notes tomorrow.”
Monday’s triple-A muni scale in 10 years was at 92.6% 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 109.3% of the comparable London Interbank Offered Rate.
Treasuries were somewhat weaker Monday. The benchmark 10-year note was quoted recently at 3.65% after opening at 3.64%. The 30-year bond was quoted recently at 4.71% after opening at 4.72%. The two-year note was quoted recently at 0.78% after opening at 0.75%.
Activity in the California new-issue market was light Monday.
The economic calendar was light Monday.
Previous Session's Activity
The most actively traded security in the state yesterday was San Juan Unified School District 5s of 2028, which traded 60 times at a high of 97.161 and a low of 93.525.
