NEW YORK — Municipal buyers, replete with setters and shotguns, were out hunting for yield Thursday, but found little to bring home beyond some game in the intermediate range.
Overall flow in the secondary market was satisfactory, a trader in California said. Retail investors didn’t help much, though. There is little retail money left in the market, which is not surprising, he added, considering that October historically is not a redemption month. Many market participants instead are busy now cleaning up their books.
“We stabilized today,” he said. “The weaker underlying tone is gone; people are more constructive on the market. However, dealer inventories are very heavy.”
Many muni investors are also looking ahead toward this weekend’s critical Europe Union summit, concerning new developments on the bailout of Greece and the fate of the Euro. As such, those with squared positions are treating the meeting almost as an economic indicator, a trader in Florida said.
The results of the summit will likely affect how munis perform next week, he added. “So, either we walk in on Monday and the Treasury market is running, because they’re disappointed, and so munis would probably follow, based on the interest [they’ve seen] this week,” the Florida trader said. “Or, it meets expectations and equities get a big pop, and munis may have a tough time here.”
Relative value players, ahead of the curve, have already made their bets and put on their ratio trades, he said. They stand to benefit from good news out of Europe. But mostly, he added, the next two days may be more about “housecleaning and squaring positions.”
Tax-exempt yields are unchanged at the edges and lower in the intermediate range. Yields are steady through four years and out beyond 17 years, according to the Municipal Market Data scale. Those between five and 17 years are one or two basis points lower.
The benchmark 10-year muni yield Thursday slipped two basis points to 2.43%. It sits 46 basis points above the record low it held on Sept. 23.
The 30-year yield remained at 3.69% for a third straight session. The two-year yield hovered at 0.45% for a seventh consecutive session.
Treasury yields, as they did Wednesday, started the morning slightly weaker, fell around noon, only to finish Thursday’s session mostly higher. The benchmark 10-year Treasury yield rose two basis points to 2.19%.
The 30-year increased three basis points to 3.21%. The two-year yield held steady at 0.28%.
“We migrate in the direction of wherever Treasuries go,” another California trader said.
The industry predicts this week’s new issuance will total $6.7 billion. Last week, the municipal bond market saw $4.5 billion.
Three deals — two negotiated and one competitive — were expected to provide both a disproportionate share of the volume as well as direction for the market. One deal, $1.8 billion of California general obligation bonds, arrived with concessions. Another, $1 billion of New York City’s Hudson Yards Infrastructure Corp. senior revenue bonds, rolled in with tight pricing. In all, the market reacted with yields mostly holding their ground.
In one sign of the market’s current strength, Barclays Capital and Goldman, Sachs & Co. teamed up to price Ohio State University general receipts taxable bonds with 100-year maturities. The deal upsized from $300 to $500 million Wednesday based on robust investor demand, a source close to the deal told The Bond Buyer.
On the competitive side of the market, JPMorgan won $100 million of New Hampshire GO capital improvement bonds. The bonds are rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings.
Yields ranged from 0.38% with a 3.00% coupon in 2013 to 3.80% with a 4.00% coupon in 2031.
Muni-Treasury ratios, which have been rising of late, now stand at their highest levels since January 2009, according to Janney Capital Markets municipal credit analyst Tom Kozlik. He cited a few reasons for rise in a recent research report.
Leading off, the pace of new issuance is accelerating, following a sluggish start to 2011.
Though the number of new money loans is modest, rock bottom rates have caused a rise in refunding deals. They account for about 50% of September’s calendar, Kozlik wrote.
Secondly, municipal mutual fund flows have been moderate over the past six weeks, or so, compared to the pace seen during the same period last year. And money that becomes available through maturing and called bonds — which averaged roughly $26 billion a month during the summer — will average around $14 billion per month from September to November before rising in December.
Finally, Kozlik added, possible risks to municipal bonds’ tax exemption could generate uncertainty and hesitation among investors.
In economic news, the National Association of Realtors reported Thursday that existing home sales fell 3.0% in September to a seasonally-adjusted 4.91 million. August sales were revised upward to 5.06 million, from the 5.03 million figure reported last month.
The median sales price fell to $165,400 from $171,200 in September. The number has fallen 3.4% from a year ago.
