NEW YORK – The municipal market was flat to slightly weaker Monday, as losses in the taxable market weighed on lightly-traded tax-exempts.
“There is very little trading thus far, so you could call it flat just based on that,” a trader in New York said. “But the continued taxable losses are still weighing the market down, so there’s a definite weaker tone. I’d say slightly weaker, but the lack of trading thus far makes that weakness difficult to quantify.”
Taxable yields have been rising for the past several sessions, and Friday’s drop in the unemployment rate also sent signals that the economy is recovering. Municipals, though cheapening somewhat, thus far have not seen a comparable sell-off due to a light new-issue calendar and continued interest from crossover buyers due to relative value.
In a note to investors, Daniel Berger, strategist at Thomson Reuters, wrote that the staggering outflows from muni bond mutual funds seen over the past three months mostly represents smaller retail investors, who typically chase performance and returned to stocks given recent returns and bad press tax-exempts have received. However, Berger noted, this hasn’t seemed to extend to high net-worth retail investors, who typically employ a buy-and-hold strategy.
“We are somewhat encouraged by stories that have indicated that these investors are generally not spooked by headlines created by municipal bond doomsayers and they have kept their portfolios in tact,” Berger wrote. “Another encouraging sign is that the rate of selling from municipal fundholders has temporarily slowed down during the past two weeks.”
The Municipal Market Data triple-A 10-year scale was unchanged Monday at 3.38%, the 20-year scale held at 4.61%, and the scale for 30-year bonds remained at 4.92%.
In the daily MMD commentary, Randy Smolik wrote that weaker adjustments were seen in the short end of the curve, due to a combination of selling pressure from late Friday and block trades from Monday.
“The pressure could be setting up for the short-weighted South Carolina GO loan that sells Wednesday,” he wrote. “Treasury notes weren't fairing that well either, feeling heavy most of the session as the taxable market looked to bid on $32 billion of Treasury three-year notes tomorrow.”
Monday’s triple-A muni scale in 10 years was at 92.6% of comparable Treasuries and 30-year munis were at 104.5% according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 109.3% of the comparable London Interbank Offered Rate.
Treasuries were somewhat weaker Monday. The benchmark 10-year note was quoted recently at 3.65% after opening at 3.64%. The 30-year bond was quoted recently at 4.71% after opening at 4.72%. The two-year note was quoted recently at 0.78% after opening at 0.75%.
Issuers in South Carolina and California will face little competition as they lead an otherwise light slate of new volume in the competitive and negotiated markets estimated at just $2.62 billion, according to Ipreo LLC and The Bond Buyer.
This week's slate compares to a revised and equally modest $2.94 billion of volume last week, far below the typical $8 billion, according to Thomson Reuters.
Volume is expected to continue its seasonally light pace this month on the heels of January's paltry $12.2 billion, according to preliminary data from Thomson. January's volume was nearly 63% less than that of January 2010, and the slimmest volume of any month since January 2000.
This week, the muted activity will be led by the competitive market, where a two-pronged South Carolina general obligation refunding totaling $324 million is slated for Wednesday.
The deal consists of $197.2 million of school facilities bonds scheduled to mature from 2012 to 2017, and $126.2 million of capital improvement bonds scheduled to mature from 2012 to 2018.
The bonds have outstanding GO ratings of Aaa from Moody's Investors Service, AA-plus from Standard & Poor's, and AAA from Fitch Ratings.
Switching gears to the negotiated market, the San Joaquin County, Calif., Transportation Authority is poised to bring $211.78 million of limited tax sales tax revenue bonds. JPMorgan is expected to price the offering Wednesday after a retail order period Tuesday.
The bonds are rated Aa3 from Moody's and AA from Standard & Poor's. They are tentatively structured to mature from 2012 to 2041.
In Monday’s new-issue market, Siebert Brandford Shank & Co. priced for retail investors $170 million of GO bonds for Ohio in two series.
Bonds from the $120 million series mature from 2013 through 2030. Just the 2030 maturity was offered during the retail order period, yielding 5.00% priced at par. The bonds are callable at par in 2020, except bonds maturing in 2021, which are not callable.
Bonds from the $50 million series mature from 2013 through 2025, with yields ranging from 1.10% with a 3% coupon in 2013 to 4.05% with a 4% coupon in 2022. Bonds maturing from 2023 through 2025 were not offered to retail investors. The bonds are callable at par in 2020, except bonds maturing in 2021, which are not callable.
The credit is rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Morgan Stanley priced $60 million of hospital revenue refunding bonds for the North Carolina Medical Care Commission.
The bonds mature from 2013 through 2023, with yields ranging from 1.99% with a 4% coupon in 2013 to 5.125% priced at par.
The bonds, which are callable at par in 2021, are rated AA by Standard & Poor’s and Fitch.
The economic calendar was light Monday.
Visible Supply
The Bond Buyer's 30-day visible supply fell $105.4 million to $7.865 billion. The total is comprised of $1.604 billion of competitive bonds and $6.261 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported there were 42,707 trades of 15,620 issues for a volume of $10.20 billion. Most active was taxable Chicago 7.781s of 2035 that traded 226 times at a high of 102.550 and a low of 98.831.
