NEW YORK – The California municipal market was slightly weaker Tuesday amid light to moderate secondary trading activity.
Traders said rising taxable yields continue to put pressure on tax-exempt yields, though the weakness has been muted by a light new-issue calendar and continued relative value interest from crossover buyers.
“We’d probably be weakening more in sympathy if we had more supply weighing us down,” a trader in Los Angeles said.
The Municipal Market Data triple-A 10-year scale climbed one basis point Tuesday to 3.39%, the 20-year scale rose one basis point to 4.62%, and the scale for 30-year bonds increased three basis points to 4.95%.
In the daily MMD commentary, Randy Smolik wrote “thin market conditions kept muni adjustments very modest. But, as ratios continued to fall, one does have to question the market's depth and will conviction hold up once the bid is tested with supply.”
Tuesday’s triple-A muni scale in 10 years was at 91.1% of comparable Treasuries and 30-year munis were at 104.2% according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 109.5% of the comparable London Interbank Offered Rate.
Treasuries showed some losses Tuesday. The benchmark 10-year note was quoted recently at 3.73% after opening at 3.63%. The 30-year bond was quoted recently at 4.76% after opening at 4.69%. The two-year note was quoted recently at 0.85% after opening at 0.76%.
The Treasury Department auctioned $32 billion of three-year notes with a 1,25% coupon at a 1.349% yield, a price of 99.71. The bid-to-cover ratio was 3.01. The Federal Reserve banks also bought $734.2 million for their own account in exchange for maturing securities.
In Tuesday’s new-issue market, JPMorgan priced for retail investors $216.4 million of sales tax revenue bonds for San Joaquin County Transportation Authority.
The bonds mature from 2016 through 2031, with term bonds in 2036 and 2041. Yields range from 2.42% with a 3% coupon in 2016 to 5.46% with a 5.375% coupon in 2031. Bonds maturing from 2027 through 2030, and in 2036 and 2041 were not offered during the retail order period.
The bonds, which are callable at par in 2021, are rated Aa3 by Moody’s Investors Service and AA by Standard & Poor’s.
The economic calendar was light Tuesday.
Previous Session's Activity
The most actively traded security in the state yesterday was San Juan Unified School District 5s of 2028, which traded 60 times at a high of 97.161 and a low of 93.525.
