NEW YORK – The municipal market was flat with a slightly firmer tone Tuesday amid light to moderate secondary trading activity.
Traders said tax-exempt yields were mostly flat, with some slight gains of about one or two basis points through the intermediate maturities.
“It’s a bit of a quiet start to the week,” a trader in New York said. “It’s pretty flat, though there’s a bit of a firmer tone out there. We’re maybe better by a basis point or so in spots. But it’s quiet.”
The Municipal Market Data triple-A scale yielded 2.30% in 10 years Tuesday, down two basis points from Friday’s 2.32%, while the 20-year scale matched Friday’s 3.30%. The scale for 30-year debt yielded 3.71%, matching Friday.
“People are sort of easing their way back from the long weekend,” a trader in Los Angeles said. “It’s maybe up a basis point if anything, but it’s just flat for the most part.”
Tuesday’s triple-A muni scale in 10 years was at 95.0% of comparable Treasuries and 30-year munis were at 97.6%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 108.2% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Tuesday. The benchmark 10-year note was quoted recently at 2.42% after opening at 2.39%.
The 30-year bond was quoted recently at 3.79% after opening at 3.75%. The two-year note was quoted recently at 0.37% after opening at 0.34%.
After the deluge of supply last week, the municipal market will see a noticeable lull in new-issue activity this week.
Volume is expected to dip to $5.93 billion - less than half of last week's revised total and the lowest in three weeks - due to Monday's Columbus Day holiday, according to Ipreo LLC and The Bond Buyer.
The market was home to a revised $11.05 billion of long-term bond financings last week, even though $13.13 billion was originally anticipated, according to Thomson Reuters. The bevy of supply came on the heels of a revised $9.89 billion the week of Sept. 27.
A $1.59 billion New Jersey Transportation Trust Fund Authority offering of transportation system revenue bonds is the largest deal expected to come to the negotiated market this week - part of an estimated $5.04 billion versus last week's revised $8.82 billion.
Scheduled for pricing by Barclays Capital on Thursday, the three-pronged sale is rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's.
The structure consists of $929 million of Series 2010C taxable Build America Bonds maturing in 2027; $464.4 million of Series 2010D tax-exempt bonds maturing from 2014 to 2024; and $199 million of traditional taxable debt maturing in 2013 and 2014.
Los Angeles will sell a total of $451 million of wastewater system revenue bonds to finance improvements and construction to the city's wastewater collection and treatment system and to refund a portion of outstanding commercial paper notes.
Rated Aa2 by Moody's, AA-plus by Standard & Poor's, and AA by Fitch, the deal will be priced in three series - two of which total $267 million and will be priced by Siebert Brandford Shank & Co., on Wednesday after taking indications of interest on Tuesday.
That portion of the deal consists of $186.7 million of Series 2010 A senior-lien taxable BABs maturing in 2039 and $80 million of Series 2010 B taxable recovery zone economic development bonds maturing in 2040.
Cabrera Capital Markets, meanwhile, will price an additional $184 million series structured as tax-exempt subordinate-lien revenue bonds rated Aa3 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch.
The firm will price the bonds for retail on Tuesday and for institutions on Wednesday. However, the structure of the debt offering was still being determined at press time.
Switching gears to the competitive market, the only sizable deal is a two-pronged $606.5 million Tennessee GO sale planned for Wednesday in the competitive market, where the expected total volume of $889.1 million is a far cry from the revised $2.23 billion that came last week, according to Thomson Reuters.
Rated triple-A by Moody's and Fitch and AA-plus by Standard & Poor's, the deal consists of $437 million of GO refunding debt in Series 2010 A and $169.5 million of new-money debt in Series 2010 B.
The Series A bonds are structured to mature from 2012 to 2031, with the 2019 through 2031 maturities subject to a May 1, 2018 call at par.
Series B is structured to mature from 2012 to 2023, with the 2019 to 2023 maturities subject to call on Aug. 1, 2018 at par.
The deal's proceeds will retire a portion of the state's outstanding commercial paper and finance capital projects.
“Yields have risen in certain parts of the municipal market, specifically the six-to-16 year maturity range,” wrote John Dillon, chief municipal bond strategist and executive director at Morgan Stanley Smith Barney in a report. “New issue supply has returned, is robust and has been offering significant value. State and local government credit quality remains under pressure, but there have been noteworthy positive developments despite what appears to be a renewed round of headline risk.”
“The Build America Bonds program, which has been a primary driver of tax-exempt performance, is facing increasing extension uncertainty as we approach its year-end expiration,” Dillon continued. “That said, yields in the longer end of the market, which hover just above record lows, may experience upward pressure if a positive resolution remains elusive. We suggest taking profits in that longer end with redeployment into our target six-to-14 year maturity range.”
The economic calendar was light Tuesday.
Visible Supply
The Bond Buyer’s 30-day visible supply rose $2.127 billion to $10.739 billion. The total is comprised of $2.063 billion of competitive bonds and $8.676 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 3,308 trades of 2,305 issues for volume of $124.01 million. Most active was New York 5.817s of 2031 that traded 84 times at a high of 104.250 and a low of 100.250.
