NEW YORK – The municipal market remained unchanged Tuesday as the pricing of a $300 million Louisiana general obligation offering provided some much-needed direction to an otherwise lifeless market, traders said.
Amid continued light trading in the secondary market, the Louisiana competitive deal will likely be the largest new deal of the week as Ipreo LLC and The Bond Buyer estimated new volume at $1.79 billion versus a revised $5.95 billion last week, according to Thomson Reuters.
“Today the tone is unchanged, we’re not up, but we’re not weaker,” said a New York trader. “With such little supply, there is no price discovery. The Louisiana deal kind of gave the market some direction.”
Traders said municipals were unchanged across the curve throughout the day.
“Yesterday was completely dead,” he explained “Today, there seems to be more interest in buying bonds. People are not paying up for bonds, but at least there is a two-way flow,” he added.
“Last week, there was certainly more aggressive buying than this week, but it doesn’t seem like the demand for bonds has abated yet.”
In the new-issue market, the Louisiana bonds were won competitively by Barclays Capital. While no official pricing details were yet released, the trader said the bonds ranged from 5% in 2016 to yield 2% to 5% in 2030 to yield 4.38%.
The bonds are rated Aa2 by Moody’s Investors Service, and AA by both Standard & Poor’s and Fitch Ratings.
In other competitive activity Tuesday, $79.1 million of Seattle, Wash., limited tax general obligation improvement bonds were won by JPMorgan with a true interest cost of 3.648%.
The 2012 maturity with a 3% coupon was not reoffered, while the 2031 maturity carried a 4.50% coupon and was priced to yield 4.57%. The bonds are rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch.
A $25 million unlimited tax GO offering for Salt Lake County, Utah, was competitively won by Wells Fargo Securities with a winning TIC of 3.192%. The earliest maturity in 2011 carried a 4% coupon, but was not reoffered. The rest of the scale ranged from 4% in 2012 with a 0.55% yield to 4% in 2030 with a 4.21% yield. The bonds are rated triple-A by all three major rating agencies.
“I think the municipal market is still dominated by limited supply and in the absence of heavy supply the amount of buying around is sufficient enough to handle the Street’s inventory and customer selling,” said a Pennsylvania trader.
Looking ahead to the rest of the week, new issuance remains bleak.
“The week ahead brings modest new risks, with some vulnerability should Friday’s employment number finally surprise to the upside, or should events in Wisconsin continue to go unresolved,” wrote Matt Fabian, managing director of municipal research at Municipal Market Advisors in his weekly outlook.
“There is also potential for a new hearing in Washington as Congress wrestles with just how concerned it should be over state fiscal health,” Fabian wrote.
Meanwhile, the impact from Tuesday’s testimony from Federal Reserve Board Chairman Ben Bernanke before Congress had more of an impact on the Treasury market than it did on the municipal market, participants said.
“I would call the muni market a little tired,” a trader in New York said Tuesday. “It seems to be slightly weaker with no real trading going on.”
“Munis are basically kind of in a holding pattern,” he continued. “The redemptions that were happening have slowed and I think accounts are hoarding cash in anticipation of more redemptions or a calendar that hasn’t materialized yet.”
“They are not really putting cash to work yet either, just having a decent amount of cash on their books,” he said.
The trader said revenue bonds from New York City Municipal Water Authority due in 2043 with a 5 3/8% coupon were trading a 5.14% on Tuesday, while Arizona Salt River Project bonds due in 2039 with a 5% coupon were trading at a 5.10%.
“Those prices are off about a half a point from yesterday,” he said.
The Municipal Market Data triple-A 10-year scale fell one basis point Tuesday to 2.96%, the 20-year remained unchanged at 4.26%, and the scale for 30-year bonds rose one basis point to 4.70% from Monday.
Tuesday’s triple-A muni scale in 10 years was at 86.8% of comparable Treasuries and 30-year munis were at 104.9% according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 110.1% of the comparable London Interbank Offered Rate.
The Treasury market showed some losses, mostly on the long end Tuesday, following Bernanke’s announcement earlier in the day that the recent surge in oil prices was unlikely to have a big impact on the U.S. economy, but could lead to weaker growth and higher inflation if sustained.
In his comments about the possibility of continued support for the central bank’s quantitative easing program, Bernanke also acknowledged that the risk of deflation and the downside risks to the economy have receded.
U.S. Treasuries prices on the short end began to show signs of shedding some earlier losses by Tuesday afternoon as stock market losses prompted investors to take a new look at U.S. government debt as a safe haven. Ongoing fears of political unrest in the Middle East and North Africa also fed the bid, however, the long end remained weaker.
The benchmark 10-year note was quoted at 3.40% after opening at 3.43%. The 30-year bond remained at 4.48% at Tuesday’s close after opening at 4.50%. Meanwhile, the two-year note was quoted at 0.65%, only slight improvement from 0.68% at the open.
Visible Supply
The Bond Buyer’s 30-day visible supply rose by $251.7 billion to $7.095 billion compared to the previous session. The total is comprised of $1.657 billion of competitive bonds and $5.437 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 42,468 trades of 16,928 issues for a volume of $8.9 billion on Monday. Most active was Franklin County, Ohio 5.25s of 2040 that traded 102 times at a high of 97.206 and a low of 94.131.
