NEW YORK – Despite traders recovering from a long holiday weekend, the tax-exempt market was fairly busy in the first trading session of the 2012.
“It was a little busy in the morning on the muni side,” said a trader in New Jersey. “Even though the Treasury was off, muni bids were still firm. The scale is not changing much. Maybe a basis point here or there.”
He added it is typical for activity to slow after a long holiday weekend, and so traders weren’t as active Tuesday compared to a typical day. Still, “buyers are on the sidelines waiting for new issuance and bonds are priced well in the secondary.”
Early Tuesday morning, market participants were out looking to buy bonds.
“There is buying out of the chute,” said a trader in New York. “Even though short-term muni-to-Treasury ratios are now approaching rich levels, there are buyers still out. And they are buying.”
But by afternoon, trading had quieted. “Activity has slowed down since this morning,” he said. “With equities up big, it has taken the focus off munis.”
And after 2 pm Eastern time, stocks rose off session lows, when the Federal Open Market Committee issued minutes from its Dec. 13 meeting, saying the economy is “expanding moderately” and has no plans to change projections.
The committee made one change of note, saying it plans to include information about projections of appropriate monetary policy into the Summary of Economic Projections, which the FOMC releases four times each year.
“Specifically, the SEP will include information about participants’ projections of the appropriate level of the target federal funds rate in the fourth quarter of the current year and the next few calendar years, and over the longer run; the SEP also will report participants’ current projections of the likely timing of the first increase in the target rate given their projections of future economic conditions,” the minutes say.
The rally in stocks weakened munis on the long-end Tuesday, according to the Municipal Market Data scale. The one-year yield fell one basis point while yields on the two-year to six-year were unchanged. But munis outside the seven-year were mostly weaker. The seven-year yield rose two basis points and the eight-year yield increased one basis point. Yields between the nine-year and 24-year were unchanged. Yields on the 25-year maturity and beyond rose one basis point.
The MMD Jan. 1 market adjustment including Tuesday’s scale read, show yields rising between one and six basis points inside the five-year, with the majority of the change coming on the short-end. Yields between the six-year and 11-year maturities were increased between three and six basis points. The 12-year to 22-year yields increased seven basis points while the 23-year and 24-year yields rose four basis points. Yields outside the 25-year maturity rose two basis points.
At Tuesday’s close, the two-year finished at 0.42%. The 10-year closed at 1.88% and the 30-year finished at 3.57%.
After firming last week, Treasuries weakened in the first trading day of 2012. The two-year yield rose two basis points to 0.27%. The benchmark 10-year yield jumped up eight basis points to 1.96% and the 30-year yield spike up 10 basis points to 2.99%.
In the primary market this week, the municipal market can expect $543 million in new issuance, down from last week’s revised $3.95 billion. Roughly $323.3 million in negotiated deals are expected, down from last week’s revised $3.6 billion. In the competitive market, about $219.7 million is expected, down from last week’s revised $305.4 million.
No big deals were priced Tuesday. Looking ahead to Wednesday, one of four negotiated deals on the calendar is expected to come to market. RBC Capital Markets is expected to price $8.8 million of Pennsylvania’s Green Township Municipal Authority bank qualified bonds, rated Aa3 by Moody’s Investors Service.
On the competitive calendar Wednesday, the Little Rock, Ark., School District will issue $44 million of bonds.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed continued firming after strengthening the last week.
A dealer sold to a customer New Jersey Transportation Trust Fund Authority 5.25s of 2036 at 4.23%, 10 basis points lower than where they traded last week.
A dealer bought from a customer Golden State Tobacco Securitization Corp. 4.5s of 2027 at 6.30%, five basis points lower than where they traded two weeks ago.
Bonds from an interdealer trade of Colorado Health Facilities Authority 5.25s of 2025 yielded 5.42%, three basis points lower than where they traded two weeks ago.
