NEW YORK – The California municipal market was flat with a slightly firmer tone Tuesday amid light to moderate secondary trading activity.
Traders said tax-exempt yields were mostly flat, with some slight gains of about one or two basis points through the intermediate maturities.
“It’s a bit of a quiet start to the week,” a trader in New York said. “It’s pretty flat, though there’s a bit of a firmer tone out there. We’re maybe better by a basis point or so in spots. But it’s quiet.”
The Municipal Market Data triple-A scale yielded 2.30% in 10 years Tuesday, down two basis points from Friday’s 2.32%, while the 20-year scale matched Friday’s 3.30%. The scale for 30-year debt yielded 3.71%, matching Friday.
“People are sort of easing their way back from the long weekend,” a trader in Los Angeles said. “It’s maybe up a basis point if anything, but it’s just flat for the most part.”
Tuesday’s triple-A muni scale in 10 years was at 95.0% of comparable Treasuries and 30-year munis were at 97.6%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 108.2% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Tuesday. The benchmark 10-year note was quoted recently at 2.42% after opening at 2.39%.
The 30-year bond was quoted recently at 3.79% after opening at 3.75%. The two-year note was quoted recently at 0.37% after opening at 0.34%.
After the deluge of supply last week, the municipal market will see a noticeable lull in new-issue activity this week.
Los Angeles will sell a total of $451 million of wastewater system revenue bonds to finance improvements and construction to the city's wastewater collection and treatment system and to refund a portion of outstanding commercial paper notes.
Rated Aa2 by Moody's, AA-plus by Standard & Poor's, and AA by Fitch, the deal will be priced in three series - two of which total $267 million and will be priced by Siebert Brandford Shank & Co., on Wednesday after taking indications of interest on Tuesday.
That portion of the deal consists of $186.7 million of Series 2010 A senior-lien taxable BABs maturing in 2039 and $80 million of Series 2010 B taxable recovery zone economic development bonds maturing in 2040.
Cabrera Capital Markets, meanwhile, will price an additional $184 million series structured as tax-exempt subordinate-lien revenue bonds rated Aa3 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch.
The firm will price the bonds for retail on Tuesday and for institutions on Wednesday. However, the structure of the debt offering was still being determined at press time.
“Yields have risen in certain parts of the municipal market, specifically the six-to-16 year maturity range,” wrote John Dillon, chief municipal bond strategist and executive director at Morgan Stanley Smith Barney in a report. “New issue supply has returned, is robust and has been offering significant value. State and local government credit quality remains under pressure, but there have been noteworthy positive developments despite what appears to be a renewed round of headline risk.”
“The Build America Bonds program, which has been a primary driver of tax-exempt performance, is facing increasing extension uncertainty as we approach its year-end expiration,” Dillon continued. “That said, yields in the longer end of the market, which hover just above record lows, may experience upward pressure if a positive resolution remains elusive. We suggest taking profits in that longer end with redeployment into our target six-to-14 year maturity range.”
The economic calendar was light Tuesday.
Previous Session's Activity
The most actively traded security in the state yesterday was San Joaquin Hills 5s of 2033, which traded 25 times at a high of 87.806 and a low of 87.304.
