The municipal market closed out Friday mostly unchanged for the day as well as for the week, as a dearth of activity hasn’t offered enough evidence to move the scales in either direction.
The Municipal Market Data scale was unchanged again on Friday, with 10-year triple-A bonds holding in at 3% and 30-year triple-A paper holding at 4.78% — the same yield every day for the whole week.
A commonly heard explanation, though, is that the market is actually weaker and there just isn’t enough trading activity to reflect that weakness.
Demand for long-term paper remains thin, and virtually all the minimal supply that has come to market is high-grade. The market passed a $4.5 billion supply test last week, but it remains to be seen how it could handle lower-quality paper or any real swelling in volume.
Even top-rated deals aren’t going 100% smoothly, as evidenced by the unsold balances that remain from the $485 million Maryland deal still lurking in dealer inventories.
“We’ve all acknowledged the municipal market is somewhat of a sick market,” said a trader in New Jersey. “These aren’t levels that I want to stock bonds at. I don’t want to take risk here at these levels.”
Would-be sellers are seeking bids on more than $790 million of municipal bonds, which is the highest since mid-February, according to a Bloomberg LP index tracking bids-wanted.
“The last few days you’ve seen all these bid lists come out, but not much trading,” one trader in New York said. “You see the scales at the end of the day unchanged, and it’s like, ‘That doesn’t really feel right.’ That’s not the market tone out there. It’s the lack of the actual ticketing stopping the cuts from happening.”
This trader said the market was “certainly weaker” on Friday.
Despite the weakness that we’ve argued all week underlies the market, the lone deal to price Friday — the Independent School District No. 4. in Tulsa County, Okla. — was benign for two reasons.
One, it was only $9.2 million. Two, its longest maturity is 2016. The municipal market is doing fine with shorter maturities. In fact, the MMD scale last week actually strengthened as much as four basis points for short maturities. It’s the long maturities where buyers are scarce.
Then again, the optimists do have some things to point to. State and local governments are slated to sell barely more than $2 billion of debt next week, and it’s looking more and more likely the market will work through the entire first quarter and more without the supply surge people were worried about.
