NEW YORK – The municipal market was unchanged with a slightly firmer tone Monday amid light to moderate secondary trading activity.
“We’re maybe a touch firmer out long, but we’re flat for the most part,” a trader in New York said. “The secondary is fairly light right now.”
The Municipal Market Data triple-A 10-year scale fell one basis point Monday to 3.33%, the 20-year was unchanged at 4.57%, and the scale for 30-year bonds held at 4.90%.
“Thin secondary supply and very modest primary scheduling still told the Street that the path to least resistance is to lower yields,” wrote Randy Smolik in the daily MMD commentary. “But, rather than showing their hand today, dealers seemed to want to hold back and wait for tomorrow's broad array of competitive deals to be priced before giving the market a significant push.”
Monday’s triple-A muni scale in 10 years was at 92.0% 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 110.4% of the comparable London Interbank Offered Rate.
Treasuries mostly showed gains Monday. The benchmark 10-year note was quoted recently at 3.62% after opening at 3.69%. The 30-year bond was quoted recently at 4.67% after opening at 4.75%. The two-year note was quoted recently at 0.85% after opening at 0.83%.
A $3.7 billion taxable Illinois general obligation sale this week is the largest single deal to test the fickle and fiscally challenging waters of the municipal market so far this year. It will be the standout offering in an otherwise lifeless primary.
Ipreo LLC and The Bond Buyer expect volume to hit $6.090 billion - roughly $2 billion less than the typical amount - but up from last week's revised $2.715 billion, according to Thomson Reuters.
The light issuance coincides with a challenging market for issuers and investors lately.
The Illinois deal, which is slated for pricing on Thursday by Morgan Stanley, comes on the heels of a report that low short-term rates caused a 28% decline in the investment income of state and local municipalities for fiscal 2010 compared to 2009, according to initial figures from Merritt Research.
Though investment income is a small percent of municipalities' revenue, the reduction is adding pressure at a time when most government revenue sources are already under significant stress.
Last Wednesday, members of the House Oversight and Government Reform Committee opposed federal bailouts for financially strapped municipal governments and bankruptcy protection.
The Illinois bonds, rated A1 by Moody's Investors Service, A-plus by Standard & Poor's, and A by Fitch Ratings, will fund or reimburse a portion of the state's obligation to make contributions to its pension fund and pay the costs of financing, including, the costs of issuance of the bonds, according to the preliminary official statement.
The bonds will mature on March 1 in a structure that includes bonds maturing from 2011 to 2019.
Earlier this month, the Illinois Supreme Court put on hold a Jan. 26 state appeals court ruling that voided taxes and other revenue earmarked to pay off bonds for a $31 billion capital improvement program.
Illinois has issued $2.23 billion of bonds since 2009 for the program to improve roads, bridges, schools and other infrastructure, according to a spokeswoman for the state's budget office.
In other market activity, a pair of Pennsylvania deals are on tap - one in the transportation sector and one in the health and higher education sector.
The Allegheny County Port Authority is planning to sell $263.2 million of transportation revenue bonds in a negotiated deal scheduled to be priced by RBC Capital Markets LLC. The bonds are rated A-plus by Standard & Poor's and AA-minus by Fitch.
A $150 million sale of revenue bonds from the Pennsylvania Health and Higher Educational Facilities Authority is also planned for sale this week by Bank of America-Merrill Lynch. The firm could not disclose the exact date at press time on Friday.
The bonds are rated Aa3 by Moody's and AA-minus by Standard & Poor's, but Bank of America said the maturity structure was also being finalized late last week.
Two Washington issuers are also gearing up for a trip to market. The larger of the pair of deals is a $200 million sale of GO bonds from the Bellevue School District #405 expected to price on Tuesday.
The bonds, which are rated Aaa by Moody's, are structured to mature from 2012 to 2030.
“The municipal bond market performed pretty much in line with Treasuries as rates rose earlier in the week, but then rallied modestly as Treasuries continued to fade,” wrote George Friedlander, municipal strategist at Citi, in a research note. “The muni market is still struggling to find its levels in the face of abnormally light supply, which could continue through March.”
“We continue to be concerned that, as supply finally rebounds, sectors that have not attracted demand from crossover buyers will have to widen out versus sectors that have crossover demand,” Friedlander wrote. “We continue to find paper in the 15- to 20-year range attractive but would keep credit quality quite high for now. When issuance finally rebounds, as we expect it to in April, we anticipate that there will be more attractive offerings of medium-quality paper as the market struggles to find sufficient buyers in this quality range.”
The economic calendar was light Monday.
Visible Supply
The Bond Buyer's 30-day visible supply rose $173.1 million to $11.035 billion. The total is comprised of $1.852 billion of competitive bonds and $9.183 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported there were 41,831 trades of 15,893 issues for a volume of $10.69 billion. Most active was Calif. Health Facilities Financing Authority 7.875s of 2026 that traded 267 times at a high of 101.414 and a low of 99.614.
