The tax-exempt market ended flat on Monday as participants said activity was subdued and the trading session felt like a holiday.
"The secondary is slow, if not stopped," a Chicago trader said. "It's certainly not going forward and it almost feels like a holiday. I think ultimately there is no direction and there is not enough supply to push the market one way or the other."
The trader said that while there are bond-friendly economic numbers, it's not enough to tip the scale one way or the other. "So, we are holding our cards and waiting. … The ultimate investor has to decide if they are going to accept these yields and come back into the market with all the cash on the sidelines or continue to not care and at some point no one has an unlimited pot of cash to keep holding inventories and with new issues, scales will have to be cut in that instance. So we are waiting to get a sense of the direction."
Other traders agreed the market was unusually quiet. "The market is dead," a New York trader said, adding that most of the big new deals are expected to price starting Tuesday.
The quiet market also reflected the muted impact on the municipal market of Moody's Investors Service's downgrade of 15 major banks.
"I think there was a decent amount of expectation of that type of news coming into our marketplace so I wouldn't say it's completely unexpected, but it added to the view that no one is really sure which way this is going to go," the Chicago trader said. "The underpinnings of the economy are not healthy, interest rates are going to stay low, and so it gets back to uncertainty about the direction of munis. And when there are too many choices or uncertainty, people do nothing. The end investor has really not defined their ultimate direction."
Munis ended steady on Monday, according to the Municipal Market Data scale. The 10-year yield ended flat at 1.86% for the seventh consecutive trading session, while the two-year ended steady at 0.32% for the 17th straight session. The 30-year yield finished flat at 3.16%.
Treasuries strengthened Monday. The benchmark 10-year yield dropped seven basis points to 1.61%, while the 30-year yield fell six basis points to 2.69%. The two-year yield fell one basis point to 0.31%.
In the primary market Monday, Citi priced for retail $1.14 billion of New York State Thruway Authority general revenue bonds, rated A1 by Moody's and A-plus by Standard & Poor's.
Yields ranged from 0.94% with 3% and 4% coupons in a split 2015 maturity to 4.00% priced at par in 2037. Bonds maturing between 2024 and 2026, between 2028 and 2031, and in 2042 were not offered for retail. Credits maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2022.
Jefferies & Co. priced for retail $311.9 million of triple-A rated New York State Environmental Facilities Corp. state clean water and drinking water revolving funds revenue bonds for the New York City Municipal Water Finance Authority.
Yields ranged from 0.32% with a 2% coupon in 2014 to 3.10% with a 3% coupon in 2028. Credits maturing in 2023, 2024, 2026, and 2027 were not offered for retail. Bonds maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.
JPMorgan priced $105.9 million of King County, Wash., bonds in two tranches. The $64.2 million of sewer revenue refunding bonds are rated Aa2 by Moody's and AA-plus by Standard & Poor's. Yields ranged from 2.81% with a 5% coupon in 2026 to 3.42% with a 5% coupon in 2035. The bonds are callable at par in 2022.
The $41.7 million of limited tax general obligation refunding bonds are rated Aa1 by Moody's and AAA by Standard & Poor's. Yields ranged from 2.79% with a 5% coupon in 2026 to 3.02% with a 5% coupon in 2029. The bonds are callable at par in 2022.
In the secondary market, trades compiled by data provider Markit showed mostly firming. Yields on Philadelphia School District 5s of 2020 and San Joaquin Hills, Calif., Transportation Corridor Agency 0s of 2034 each fell two basis points to 2.98% and 6.00%, respectively.
Yields on Chesterfield County, Va., 5s of 2023 and Phoenix, Ariz., Industrial Development Authority 5s of 2042 each dropped two basis points to 2.04% and 4.90%.
So far in June, muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became relatively more expensive. The two-year ratio dropped to 103.2% on Monday from 123.1% at the beginning of the month. The 10-year ratio fell to 115.5% from 119.9% on June 1. The 30-year ratio dropped slightly to 117.5% on Monday from 120.6% at the start of June.
The slope of the yield curve has widened in June as investors sold long-duration bonds for shorter maturities. The one- to 30-year slope of the curve widened to 296 basis points from 284 basis points at the beginning of June. The one- to 10-year portion also widened to 166 basis points to 155 basis points on June 1.
Credit spreads have also widened somewhat in June as too much supply and credit fears pushed investors into higher-grade bonds. The 10-year triple-A to single-A spread widened to 82 basis points from 78 basis points at the beginning of the month. Similarly, the 30-year spread jumped to 80 basis points from 75 basis points at the start of June. The two-year spread was steady at 39 basis points.