With trading activity in the market somewhat light, and yields rising up to three basis points across the scale, investors are looking ahead to the few sizeable deals set to price in the new-issue market later this week.
"We could see some interest in some of those larger deals out there, like that [$520 million] New York City deal, but it's a relatively light new-issue calendar this week," a trader in New York said. "Still, there's definitely a need for some fresh paper out there, so we'll see what happens."
Traders said tax-exempt yields were higher by one to three basis points overall, with the long end seeing the more pronounced of the still somewhat muted losses.
"There's a bit of weakness out there today," a second trader in New York said. "It's quiet, and there's not a whole lot going on. I'd say it's only a couple basis points at this point, maybe one or two basis points, even three in spots, but overall it's fairly quiet."
"Bonds cheapened up a bit today, but it was still somewhat quiet," a trader in Los Angeles said. "I wouldn't say it's down more than a couple basis points."
Trades reported by the Municipal Securities Rulemaking Board showed losses. A dealer sold to a customer insured District of Columbia 6s of 2025 at 5.29%, four basis points higher than where they were sold Friday. Bonds from an interdealer trade of Illinois Housing Development Authority 5.05s of 2023 yielded 5.46%, up one basis point from where they traded Friday. A dealer sold to customer Delaware State Housing Authority 5.3s of 2049 at 5.70%, two basis points higher than where they traded Friday. A dealer sold to a customer Georgia 5s of 2022 at 3.57%, four basis points higher than where they were sold Friday.
A dealer bought from a customer Florida Housing Finance Corp. 5.15s of 2038 at 5.62%, up two basis points from where they traded Friday. Bonds from an interdealer trade of Arizona's Tempe Union High School District 4.125s of 2023 yielded 4.19%, four basis points higher than where they traded Friday. A dealer sold to a customer California 5.25s of 2038 at 5.61%, up four basis points from where they were sold Friday. A dealer sold to a customer Massachusetts 5s of 2032 at 4.74%, up one basis point from they traded Friday.
In a weekly report, George Friedlander, managing director and fixed-income strategist at Citi, wrote that the muni market is digesting several potential market-moving news events from last week, including the California budget deal, the signing of the stimulus bill, and "an attempt by MBIA [Inc.] to become relevant once again by setting up a muni-only subsidiary."
In addition, he wrote, the market "had to handle a significant but temporary reversal in Treasury yields, which bounced a bit higher before receding on Friday."
"Clear key factors in the muni market environment right now are the impact of the stimulus package on demand for munis, state and local credit quality, financing programs for infrastructure projects, etc.," Friedlander wrote. "State and local governments still have massive work to do to resolve their longer-term budgetary pressures, but the stimulus bill at least gives them more time to do so."
The Treasury market was mixed yesterday. The yield on the benchmark 10-year Treasury note, which opened at 2.78%, was quoted near the end of the session at 2.77%. The yield on the two-year note was quoted near the end of the session at 0.95% after opening at 0.94%. The yield on the 30-year bond, which opened at 3.57%, was quoted near the end of the session at 3.52%.
As of Friday's close, 10-year tax-exempt bonds were trading at 108.7% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were trading at 173.9% of comparable Treasuries.
Issuers in New York, Texas, and Pennsylvania will bring three of the largest deals to the primary market this week amid a relatively small slate of offerings, part of an estimated $3.97 billion planned for the negotiated and competitive markets combined.
The largest deal will hail from New York City, where a $520 million two-pronged general obligation offering is being planned for pricing tomorrow by Citi. The deal includes $400 million of tax-exempt bonds maturing serially from 2011 to 2018 and from 2022 to 2024, as well as $120 million of taxable term bonds maturing in 2021.
The bonds - which will be offered to mom-and-pop investors during a three-day retail order period that began Friday and concludes today - are rated Aa3 by Moody's Investors Service, AA by Standard & Poor's, and AA-minus by Fitch Ratings.
In Texas, a $435.1 million electric and gas system revenue offering from the San Antonio Public Service Board is being planned for pricing by Merrill, Lynch & Co. tomorrow. The San Antonio bonds are rated Aa1 by Moody's, AA-plus by Standard & Poor's, and AA by Fitch.
The University of Pittsburgh, meanwhile, will issue $421.2 million of higher education capital project and refunding bonds in what is the largest deal in a trio of planned offerings in the education sector. Barclays Capital is planning to price the offering on Thursday following a retail order period tomorrow. The offering includes $136.2 million of Series A 2009 refunding bonds maturing from 2010 to 2022, and $285 million of Series B 2009 capital project bonds that will mature from 2012 to 2031. The bonds are rated Aa2 by Moody's, and AA by Standard & Poor's.
The economic calendar was light yesterday.
