NEW YORK - The California municipal market was quiet and weaker by about one basis point Tuesday with many participants out of the office during what is a typically quiet holiday week.
Traders said there were a number of bid-wanted lists floating around the secondary Tuesday from participants looking to close their books for the end of the year, though activity was still somewhat light.
"There's some activity with the bid-wanteds, but it's considerably light overall," a trader in Los Angeles said. "We're seeing some mild losses, just based on what the Treasury is doing and the lack of liquidity, but it's muted. We're probably off one basis point or so."
The Municipal Market Data triple-A 10-year scale increased one basis point Tuesday to 3.16%, the 20-year scale was up one basis point to 4.39%, and the scale for 30-year debt was also elevated one basis point to 4.68%.
Tuesday's triple-A muni scale in 10 years was at 90.8% of comparable Treasuries and 30-year munis were at 103.3%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 109.9% of the comparable London Interbank Offered Rate.
The Treasury market was weaker Tuesday after auctions of five-year notes and four-week bills totaling $60 billion. The benchmark 10-year note was quoted recently at 3.47% after opening at 3.32%. The 30-year bond was quoted recently at 4.52% after opening at 4.41%. The two-year note was quoted recently at 0.74% after opening at 0.67%.
The Treasury Department auctioned $35 billion of five-year notes, with a 2 1/8% coupon, a 2.149% high yield, a price of 99.89. The auction was considered weak since dealers took 58% of the notes, as opposed to 6.2% for direct bidders and 35.6% for indirect bidders. The bid-to-cover ratio was 2.61. The Federal Reserve banks bought $1.75 billion for their own account in exchange for maturing securities.
The Treasury Department also auctioned $25 billion of four-week bills at a 0.065% high yield, a price of 99.99. The coupon equivalent was 0.066%. The bid-to-cover ratio was 4.75. The Federal Reserve banks bought $6.29 billion for their own account in exchange for maturing securities.
In the daily MMD commentary, Randy Smolik wrote that "buy and hold strategies are thrown in doubt as Treasury yields trend higher and muni bond funds continue to see hefty outflows."
"The holidays continue to keep muni staff thin, causing bidders to error on the side of caution and cheapen their bids," Smolik wrote. "With limited customer buying many dealers either pulled or marked their offerings substantially, waiting for the municipal market to regain liquidity. This could mean waiting until the new year begins."
In economic data released Tuesday, the consumer confidence index dropped to 52.5 in December from an upwardly revised 54.3 last month. The November index was originally reported as 54.1.
Economists polled by Thomson Reuters predicted the index would be 56.0.
Activity in the California new-issue market was light Tuesday.
Previous Session's Activity
The most actively traded security in the state yesterday was California 3s of 2011, which traded 31 times at a high of 100.964 and a low of 100.662.
