The tax-exempt market saw minimal trading Monday as most deals in the primary market were postponed and traders in the tri-state area stayed home to prepare for Hurricane Sandy.

The Securities Industry and Financial Markets Association recommended fixed-income markets close at noon Monday. The equity markets were closed all day Monday. SIFMA also recommended fixed income markets to be closed all day Tuesday.

"Everything appears to be cancelled," a Boston trader said, referring to new deals expected to price in the primary. "Everybody I call or send an email is not responding."

A trader in Chicago said business was also very slow even though he was out of Hurricane Sandy's path.

"There is nothing at all to report," the Chicago trader said. "And it will be worse Tuesday."

"My guess is they are definitely canceling and pushing deals back to next week," he added. "But then it's election week. So that could put a hold on it. It depends on how this whole thing blows through."

Late last week, New Jersey announced plans to postpone the sale of its $2.6 billion in tax and revenue anticipation notes, and traders said it was highly likely other issuers would announce postponements shortly.

Indeed, by Monday afternoon Dallas Area Rapid Transit postponed the sale of its $128.3 million of long-term bonds expected to price Wednesday. A spokesman for the issuer said a new date had not been set.

Massachusetts's Nashoba Regional School District postponed the sale of its $2.21 million of general obligation school bonds originally expected to price Tuesday. The deal is now expected to price Thursday.

On the competitive side, Washington Suburban Sanitary Commission and Virginia College postponed their auctions with no new sale date provided.

Municipal Market Data's Randy Smolik noted Morgan Stanley, JPMorgan, and Bank of America Merrill Lynch had changed listings of negotiated sales to a day-to-day basis.

To be sure, one deal was accelerated to Monday in anticipation of markets closing on Tuesday. George K. Baum & Co. priced for retail and institutions $130.8 million of Central Utah Water Conservancy District revenue bonds, rated AA-plus by Standard & Poor's and Fitch Ratings.

Yields ranged from 1.73% with a 5% coupon in 2022 to 3.06% with a 5% coupon in 2042. The bonds are callable at par in 2022.

On Monday, the MMD scale ended steady to slightly stronger. The benchmark 10-year muni yield and the 30-year yield fell one basis point each to 1.72% and 2.82%, respectively. The two-year remained at 0.30% for the 24th straight trading session.

Treasuries rallied Monday. The benchmark 10-year yield and the 30-year dropped four basis points each to 1.72% and 2.88%, respectively. The two-year yield fell two basis points to 0.29%.

As has been the case for most of the year, high yield municipal bonds continue to outperform the rest of the market. The Standard & Poor's Municipal Bond High Yield Index has returned 15.61% year-to-date and 1.24% month-to-date. That compares to the Standard & Poor's Municipal Bond Investment Grade Index which returned 6.51% year-to-date and 0.24% month-to-date.

High yield sectors have also largely outperformed the general market. The Standard & Poor's Municipal Bond Tobacco Index returned 20.28% year-to-date and 3.14% month-to-date.

Similarly, the Standard & Poor's Municipal Bond Health Care Index returned 10.00% year-to-date and 0.47% month-to-date. The Standard & Poor's Municipal Bond Housing Index returned 6.56% year-to-date and 0.30% month-to-date.

On a national level, revenue bonds continue to outperform general obligation bonds this year. The Standard & Poor's Municipal Bond Revenue Index returned 8.24% year-to-date and 0.41% month-to-date. That compares to the Standard & Poor's Municipal Bond General Obligation Index returned 5.70% year-to-date and 0.15% month-to-date.

Local GO bonds have outperformed state GOs. The Standard & Poor's Municipal Bond Local General Obligation Index returned 6.70% year-to-date and 0.21% month-to-date while the Standard & Poor's Municipal Bond State General Obligation Index returned 4.96% year-to-date and 0.12% month-to-date.

As Hurricane Sandy approached the East Coast, analysts at Municipal Market Advisors said it was too early to tell what the impact of the hurricane might be on the municipal bond market.

"In general, natural disasters have not impacted US state or local governmental long-term credit quality enough to drive sweeping defaults or even rating downgrades," wrote Matt Fabian, managing director at MMA. "However, the reported historic nature of the current storm and its potential for damage to shore communities means we cannot take the risks lightly."

He added, "Cities in Maryland, Delaware, New Jersey, New York, Connecticut, and Massachusetts are at somewhat more risk of temporary problems, but it is single-project financings that are most vulnerable to storm damage. Smaller, weaker, riskier-sector credits — nursing homes, private universities, multi-family housing — are more at risk than traditional governments."

On the upside, Fabian said Hurricane Sandy may "accelerate or encourage issuer plans to finance new projects, helping to reverse recent trends toward austerity and weak net supply."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.