NEW YORK – The California municipal market finished slightly firmer today, in light trading activity. Traders said tax-exempt yields were lower by about two basis points overall.
“I’d say we’re better a good two basis points, but there isn’t a whole lot going on,” a trader in San Francisco said. “With a pretty light new issue calendar, just coming off the holiday weekend, you’re not going to have too many people really looking to do too much this week. But we definitely firmed up a bit.”
The Treasury market was narrowly mixed today. The yield on the benchmark 10-year Treasury note, which opened at 3.50%, was quoted recently at 3.45%. The yield on the two-year note was quoted recently at 0.97%, after opening at 0.94%. And the yield on the 30-year bond, which opened at 4.36%, was quoted recently at 4.29%.
As of yesterday’s close, the triple-A muni scale in 10 years was at 91.7% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 107.1% of comparable Treasuries. Also, as of the close yesterday, 30-year tax-exempt AAA-rated general obligation bonds were at 112.6% of the comparable London Interbank Offered Rate.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that “the municipal market is well positioned to start the new month with several potential sources of strength, including seasonal reinvestment – and a weaker stock market – media expectations for scarcity of tax-exempt products, strong buying by banks and mutual funds, and more aggressive risk taking by market makers and the buy-side.”
“However, near-term performance may still hinge on California, where the political crisis has prevented budget agreement and longer-term cash flow borrowing,” Fabian wrote. “Other downsides include potentially above average monthly supply – alluding to issuers using BABs to increase their leverage and not reduce total borrowing costs, the potential for underperformance of Treasuries if economic trends continue to trend worse, and the bond insurers. Still, there are widespread expectations for strong market performance over the next few weeks. Underpriced areas of the yield curve have begun to find stronger bids and credit spreads may begin to tighten.”
Activity in the California new-issue market was light today.
The economic calendar was light today.
Previous Session’s Activity
The Municipal Securities Rulemaking Board reported California 7.5s of 2034 as yesterday’s most active. The bonds traded 103 times at a high of 96.954 and a low of 89.666.
