NEW YORK – Headline risk helped weaken the California municipal market by as much as 10 basis points Wednesday while the New York City Transitional Finance Authority brought the largest loan of the new year to the institutional market.
Traders said tax-exempt yields were higher by about five basis points inside of 10 years and as much as eight to 10 basis points on the longer end of the scale, softening for the third consecutive session.
“We definitely weakened fairly considerably,” a trader in Los Angeles said. “Munis are getting a lot of attention in the mainstream media right now, and it’s unwanted attention. It’s not doing anybody any favors out there.”
The Municipal Market Data triple-A 10-year scale increased seven basis points Wednesday to 3.31%, the 20-year scale 10 three basis points to 4.68%, and the scale for 30-year climbed four basis points to 4.83%.
In the daily MMD commentary, Randy Smolik wrote that more warnings about municipal credits in the media shook conviction, noting that a rebound in Treasuries didn’t stop munis from drifting.
“From Meredith Whitney appearing on CNBC this morning to Jamie Dimon speaking at an annual company health-care conference last night, investors were urged caution when investing in municipals with the expectation that more bankruptcies will be declared,” he wrote. “It’s hard to hold conviction until the news turns friendlier.”
James Colby, senior municipal strategist at Van Eck Global said that retail investors have succumbed to headline risk.
"This is a crisis of credit confidence that’s occurring now that’s taking people out of the marketplace until they have a reason to believe that munis will continue to be a viable and sustainable asset class," Colby said.
In Wednesday’s new-issue market, Barclays Capital priced $875 million of future tax secured subordinate bonds for the New York City Transitional Finance Authority.
The bonds mature from 2012 through 2033, with term bonds in 2035 and 2039. Yields range from 1.17% with a 2.5% coupon in 2013 to 5.33% with a 5% coupon in 2039.
The bonds are callable at par in 2020, except bonds maturing in 2028, which are callable at par in 2015. The credit is rated Aa1 by Moody’s Investors Service and AAA by both Standard & Poor’s and Fitch Ratings.
Wednesday’s triple-A muni scale in 10 years was at 98.8% of comparable Treasuries and 30-year munis were at 109.1%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 116.9% of the comparable London Interbank Offered Rate.
Treasuries showed some losses Wednesday. The benchmark 10-year note was quoted recently at 3.36% after opening at 3.34%. The 30-year bond was quoted recently at 4.53% after opening at 4.49%. The two-year note was quoted recently at 0.59% after opening at 0.58%.
Activity in the California new-issue market was light Wednesday.
In economic data released Wednesday, import prices rose 1.1% in December as fuel costs
increased.
Total export prices expanded by 0.7% last month. For the year, export prices increased 6.5% to post their largest calendar-year gain since the Labor Department started the index in 1983.
Nonfuel imports were up 0.3% and imports excluding petroleum gained 0.4%.
Economists expected import prices to increase 1.2%, according to Thomson Reuters. Import prices for November were revised upward to a 1.5% increase from the 1.3% reported last month.
Previous Session's Activity
The most actively traded security in the state yesterday was California 3s of 2011, which traded 40 times at a high of 100.990 and a low of 100.154.
