Market Close: Market Thin As Traders Eye Competitive Auctions

With two near-billion-dollar competitive deals looming later this week, traders largely stood on the sidelines Monday, while tax-exempt yields were lowered by up to two basis points.

Pennsylvania was expected to auction $950 million of general obligation bonds Tuesday but delayed the sale until Wednesday. Most market participants said the sale was postponed to allow Illinois to come to market Tuesday with $800 million of GOs.

Despite a large auction, Pennsylvania traded stronger Monday ahead of the sale this week.

“We haven’t seen Pennsylvania bonds trade weaker ahead of the sale,” a Pennsylvania trader said. “There is no tremendous weakness and Pennsylvania GOs specifically haven’t widened out going into the deal.”

In block trading, a dealer bought from a customer Pennsylvania 5s of 2019 at 1.2%, five basis points lower than where the bonds were bought Wednesday.

In odd-lot trading, bonds from an interdealer trade of Pennsylvania 4.15s of 2022 yielded 0.85%, 15 basis points lower than where the bonds traded Tuesday.

In another odd-lot trade, bonds from an interdealer trade of Pennsylvania Turnpike Commission 5.25s of 2020 yielded 2.15%, 17 basis points lower than where the bonds traded Tuesday.

But Illinois traded weaker ahead of the Tuesday auction in the more volatile odd-lot trades.

A dealer bought from a customer Illinois taxable 6.9s of 2035 at 5.93%, seven basis points higher than where the bonds were bought Thursday.

A dealer sold to a customer Illinois taxable 6.63s of 2035 at 5.70%, up four basis points from where the bonds were sold Thursday.

Another dealer sold to a customer Illinois taxable 7.1s of 2035 at 5.77%, two basis points higher from where the bonds sold Thursday.

Outside Pennsylvania and Illinois, the general market felt thin, but stronger. “There has been a lack of depth in the market over the past two to three weeks,” the Pennsylvania trader said. “It’s a bit better today, but still thin. It’s a little firmer but it’s not a bond grab.”

He added that over the last few trading sessions, activity has picked up a bit, but is nowhere near the normal trading volume.

Others agreed the market struggled to get back to work after a three-day holiday weekend.

“It’s quiet. Very quiet,” a New York trader said. The trades that were occurring were steady to Thursday’s levels, he noted.

Trades compiled by data provider Markit showed a mix of strengthening and weakening.

Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 5.375s of 2024 dropped three basis points to 6.12% and New York’s Metropolitan Transportation Authority 4s of 2043 fell one basis point to 4.06%.

Yields on Houston 5s of 2028 and Pasadena, Texas, Independent School District 5s of 2031 dropped two basis points each to 2.75% and 2.86%, respectively.

Still, other trades were weaker. Yields on Puerto Rico Aqueduct and Sewer Authority 5.75s of 2037 increased two basis points to 5.85%. The Authority was downgraded last week to junk status by Standard & Poor’s to BB-plus from BBB-minus.

Yields on Connecticut Health and Educational Facilities Authority 5s of 2041 and New York City Municipal Water Finance Authority 5s of 2044 rose one basis point each to 3.88% and 3.63%, respectively.

One mid-sized deal hit the primary Monday. Hutchinson, Shockey, Erley & Co. bought $75 million of Albuquerque, N.M., GOs, including $70 million of general purpose bonds and $5 million of sewer bonds. The credit is rated Aa1 by Moody’s Investors Service, AAA by Standard & Poor’s, and AA-plus by Fitch Ratings.

Yields ranged from 0.28% with a 4% coupon in 2014 to 2.80% with a 3% coupon in 2026. The bonds are callable at par in 2021.

Municipal bond scales ended as much as two basis points stronger Monday.

Yields on the Municipal Market Data triple-A GO scale ended as much as two basis points lower. The 10-year yield dropped two basis points to 1.89%. The 30-year yield held steady at 3.09% for the third session and the two-year finished flat at 0.31% for the 29th consecutive session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale also ended as much as two basis points lower. The 10-year yield slid two basis points to 1.94% and the 30-year yield fell one basis point to 3.18%. The two-year held at 0.33% for the 24th session.

Treasuries were stronger Monday. The two-year yield and benchmark 10-year yield dropped one basis point each to 0.24% and 1.84%, respectively. The 30-year yield fell three basis points to 3.08%.

In similar bond news, a Federal judge rule Monday afternoon that Stockton, Calif., was eligible for Chapter 9 bankruptcy protection. Bond market creditors had challenged the city’s petition during a three-day trial last week, arguing that the city had not negotiated in good faith and was not insolvent at the time it filed the petition.

Stockton bonds traded lower Monday afternoon, though odd-lot trades are known to be volatile.

A dealer sold to a customer Stockton Public Financing Authority 6.87s of 2037 at 8.75%, four basis points higher than where the bonds were sold Wednesday.  Yields are up significantly from when they were issued at par in 2006.

Bonds from an interdealer trade of 5.25s of 2034 yielded 7.23%, 26 basis points higher from where the bonds yielded Tuesday in a similar size trade.

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