NEW YORK – The California municipal market was somewhat weaker Monday in light to moderate secondary trading activity ahead of a modest new-issue calendar in the primary this week.
“It’s feeling a bit weaker,” a trader in Los Angeles said. “On the long end, we could be down three or four basis points. Overall, we’re down at least two basis points, but there is some trading going on.”
The Municipal Market Data triple-A 10-year scale was unchanged Monday at 3.22%, the 20-year scale rose two basis points to 4.55%, and the scale for 30-year climbed five basis points to 4.79%.
In the daily MMD commentary, Randy Smolik wrote that the muni curve steepened Monday “as underwriters search for orders in long serials and dollar bonds.”
“Secondary showed problems as well,” he wrote. “Markets in intermediates and shorter were steadier.”
Monday’s triple-A muni scale in 10 years was at 97.3% of comparable Treasuries and 30-year munis were at 106.9%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 114.9% of the comparable London Interbank Offered Rate.
Treasuries showed some gains Monday. The benchmark 10-year note was quoted recently at 3.29% after opening at 3.32%. The 30-year bond was quoted recently at 4.46% after opening at 4.49%. The two-year note was quoted recently at 0.58% after opening at 0.60%.
In a research note, Alan Schankel, managing director at Janney Capital Markets, wrote that December was an erratic month for the muni market as uncertainty about tax cut extensions and the future of Build America Bonds clashed with rising interest rates and growing investor concern about the financial condition of municipal issuers.
“As it became increasingly apparent that the issuance of taxable BABs would end when the ball dropped in Times Square, there was a rush by issuers to take advantage of the federal interest subsidy before it disappeared,” he wrote, noting that the $16.8 billion in new issue BABs in December was the highest monthly total in the 21 month lifetime of the popular program.
Schankel also wrote that muni yields “are on the rise again, but liquidity is not the culprit this time.”
“Concerns about the financial stability of municipal issuers have been growing, stimulated by a drumbeat of media stories about imminent defaults and a wildfire spread of bankruptcies,” he wrote. “We strongly believe predictions of a meltdown for municipal issuers are overstated, so this turmoil creates opportunity.”
The economic calendar was light Monday.
Activity in the California new-issue market was light Monday.
Previous Session's Activity
The most actively traded security in the state yesterday was Abag Finance Authority 6s of 2037, which traded 84 times at a high of par and a low of 96.141.
