NEW YORK – The California municipal market was mixed Tuesday in light to moderate secondary trading activity as investors return from a long weekend in observance of Monday’s Martin Luther King Jr. Day.
“The long end definitely got a bump,” a trader in Los Angeles said. “It could be as much as five basis points lower in yield. High grades were trading pretty well, but overall trading activity wasn’t terribly active. People were sort of easing their way back after the long weekend.”
The Municipal Market Data triple-A 10-year scale was unchanged Tuesday at 3.46%, the 20-year scale fell four basis points to 4.85%, and the scale for 30-year bonds declined six basis points to 5.02%.
Tuesday’s triple-A muni scale in 10 years was at 101.3% of comparable Treasuries and 30-year munis were at 109.0%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 120.4% of the comparable London Interbank Offered Rate.
Treasuries showed some losses Tuesday. The benchmark 10-year note was recently quoted at 3.35% after opening at 3.33%. The 30-year bond was recently quoted at 4.55% after opening at 4.53%. The two-year note was recently quoted at 0.58% after also opening at 0.58%.
In a research note, Tom Kozlik, municipal credit analyst at Janney Capital Markets, wrote that he expects headline risk to “greatly intensify” in 2011.
“While we do not believe there will be 50 to 100 high-profile local government defaults in 2011, as was predicted, we do believe investors can expect headline risk to greatly intensify as politics, politi¬cal gridlock and policy paralysis takes center stage,” he wrote. “Suggestions of factors stressing the municipal market were excessively overblown throughout 2010 and we expect exaggerations to worsen in 2011. Concern about municipal market credit risk will be heavily mixed with headlines of imminent danger stemming from political posturing during state and local government budget negotiations.”
Kozlik also wrote that investors should not buy into artificial intimidation tactics but ought to be mindful of the effect of the current economic environment on municipal holdings.
“Many involved parties have a vested interest in portraying the current fiscal situation in as dire a light as possible,” he wrote.
In economic data released Tuesday, home builder confidence in the market for new single-family homes fell short of economist expectations in January, holding steady at a level of 16 for a third consecutive month.
Economists expected the seasonally adjusted NAHB housing market index to rise to 17. Readings over 50 signal that more builders view sales conditions as being good than poor.
Previous Session's Activity
The most actively traded security in the state yesterday was taxable California BABs 5s of 2037, which traded 146 times at a high of 87.397 and a low of 83.100.
