The positive news in Greece continues to push the municipal market around and weaken its yields. But the market might be better for it, some in the industry say; any increase might eventually encourage more participation from retail investors.
Fond thoughts of the coming holiday, combined with a day of light primary issuance, made for a subdued secondary market, a trader in New York said.
“We’re hanging in there pretty well,” he said. “Most new issuance pricing on the day was firm to slightly easier.”
With the more stable outlook in Greece, muni yields continued to weaken, particularly at the longer end of the curve, according to Municipal Market Data. Tax-exempts maturing between 2012 and 2015 were steady. Those maturing in 2015 were three basis points higher.
Yields for maturities in 2017 and 2018 rose four basis points. Longer-term yields jumped five basis points. The muni-Treasury ratio here continued to steamroll lower into relatively rich territory.
Both the benchmark 10- and 30-year muni yields soared five basis points to close at 2.75% and 4.35%, respectively. The two-year yield closed at 0.42%, holding for the 14th straight session.
After yields strengthened to start the day, Treasuries pushed higher into the afternoon to end mixed. The 10-year yield was up four basis points to 3.17%. The two-year yield fell one basis point to 0.47%. The 30-year yield inched down a basis point to 4.38%.
The situation in Greece has indubitably made the U.S. market softer, according to a Los Angeles trader. But the upward trend has its limits, he added. Yields won’t really rise until there’s a huge influx in issuance, which isn’t scheduled anytime soon. Still, there won’t be significant interest in the market until the absolute yields improve drastically, the trader said.
“Absolute yields are ugly, especially for the retail buyers who’ve been buying stuff in the beginning of the year — 200 basis points cheaper,” he said. “Why would they step up for the same paper, for what seemingly is the same, at best, but if not, a weaker credit environment?”
As for that “huge influx” in the primary, the market certainly didn’t see it in the first half of 2011. With just $115.2 billion in issuance through the first six months of the year, the primary market is off about 44%. For 2010, almost $205 billion in long-term bonds was issued, according to Thomson Reuters numbers.
Issuance for the month of June was just 9% less than the same period one year ago. That compares well to January, when issuance was off by 62% over the same period. The largest states are financing fewer projects through the municipal market. Volume for last year’s top four states by issuance is down considerably.
California has roughly the same number of issues through the first six months of the year, around 400. But the amount is down by 58%, at $12.7 billion in 2011 against $30.3 billion in 2010. New York is down by 24%, Illinois by 54%, and Texas by 33%.
In new issuance on Thursday, Barclays Capital priced $327.2 million of taxable and tax-exempt revenue refunding bonds for the San Francisco Airport Commission, on behalf of San Francisco International Airport. The bonds are rated A1 by Moody’s Investors Service and A-plus by Standard & Poor’s and Fitch Ratings.
The taxable series, worth $66.6 million, offers 102 basis points over comparable Treasuries in 2013, 120 basis points over in 2014, 85 over in 2015, 125 over in 2016, 95 over in 2017, 130 over in 2018, 90 over in 2019, and 130 over in 2020.
Yields in the $164 million tax-exempt series range from 3.93% with a 5.00% coupon in 2019 to pricing at par with a 5.00% coupon in 2025.
Yields in the $96.6 million series, also tax-exempt, range from 3.84% with a 5.00% coupon in 2022 to 4.83% with a 5% coupon in 2031.
The major stock market indexes have benefited investors’ renewed enthusiasm for risk. Each rose by at least 1%.
There was positive economic news Thursday. The employment front saw a slight improvement in its numbers, though no cause for jubilation.
Seasonally adjusted initial unemployment insurance claims decreased 1,000 in the week ending June 25 to 428,000 from the previous week’s unrevised figure of 429,000. The four-week moving average rose by 500 to 426,750 from the previous week’s unrevised average of 426,250.
Seasonal auto manufacturing closures may have skewed the numbers somewhat. There’s anecdotal evidence to suggest that manufacturers may have chosen to close up shop to retool in June rather than the typical early July period, wrote David Resler, an analyst of U.S. data in the global economics group at Nomura. “Untimely auto manufacturing shutdowns is having a disruptive effect on the weekly claims data.”
What’s more, the report “does nothing to reassure anyone that the job environment is improving,” said Jennifer Lee, senior economist at BMO Capital Markets.
But June’s Chicago purchasing managers’ index also delivered some rays of light. It was much stronger than expected, rising to 61.1 in June from 56.6 in May.
The new orders index rose to 61.2 in June from 53.5 in May and the production index jumped almost 11 points to 66.9. The employment index, however, moderated to 58.7 in June from 60.8 in May.
“The rebound in the Chicago purchasing managers’ index was driven by sharp improvements in new orders and production, perhaps a reflection of the beginning of a recovery in auto activity following the supply-chain disruptions caused by the turmoil in Japan,” wrote John Ryding and Conrad DeQuadros, from RDQ Economics Data Analysis.