NEW YORK - The municipal market was weaker Monday as concerns over this week’s massive new-issue calendar weigh heavily on secondary trading.
Traders said tax-exempt yields were higher by eight to 12 basis points among bonds maturing in 10 years or later, while weakening three to five basis points on the short end.
“There’s a lot of hesitancy out there given the calendar that we are facing,” a trader in New York said. “There are more customer bid-wanteds than usual and just not a lot of liquidity. It’s not a good time to have to move paper.”
Municipal Market Data's triple-A scale yielded 2.75% in 10 years Monday, 11 basis points higher than Friday’s 2.64%, while the 20-year scale yielded 3.88%, 12 basis points more than Friday’s 3.76%. The scale for 30-year debt climbed 11 basis points to 4.31% Monday from 4.20% Friday. The MMD 30-year triple-A scale has now increased by 38 basis points since last Monday.
“We’re pretty substantially weaker,” a trader in Los Angeles said. “I think if you called it down 10 basis points overall, that would be sufficient, though it’s even weaker than that in spots, mostly out on the long end.”
Monday’s triple-A muni scale in 10 years was at 93.7% of comparable Treasuries and 30-year munis were at 99.3%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 108.6% of the comparable London Interbank Offered Rate.
The Treasury market was weaker Monday. The benchmark 10-year note was quoted recently at 2.93% after opening at 2.79%. The 30-year bond was quoted recently at 4.40% after opening at 4.28%. The two-year note was quoted recently at 0.53% after opening at 0.50%.
Cash-strapped California is poised to dominate the municipal arena this week with two separate offerings amid an estimated $14.11 billion in new volume expected in the long-term market, according to Ipreo LLC and The Bond Buyer.
New issuance is surging ahead of the impending expiration of the Build America Bond program at year's end. The upcoming slate of new-money debt is nearly double the $7.9 billion average recorded during the first 43 weeks of this year.
In the single largest short-term deal ever sold in the municipal market, the Golden State plans to sell $10 billion of revenue anticipation notes to support its cash-flow needs for the 2010-2011 fiscal year when lead manager JPMorgan prices the offering on Wednesday. The deal breaks the previous record, also set by California, of a $9 billion sale of Rans in October 2002, according to date from Thomson Reuters.
Note sales are not calculated in the week's total estimated volume. About $50 billion in notes volume has come to market overall so far this year, according to The Bond Buyer.
Leading the long-term market, Citi is expected to price $2 billion of taxable various-purpose general obligation BABs on Thursday following a retail order period Wednesday.
The deals come to market as California faces a projected $25.4 billion operating deficit, according to state officials.
Gov. Arnold Schwarzenegger and lawmakers enacted a budget last month that requires the closing of a $19 billion gap for the current fiscal year, which began July 1.
The state still is expected to be short $6 billion in the current fiscal year and $19 billion in the 2011-2012 fiscal year due to the temporary nature of most of this year's legislative budget-balancing actions and the sluggish economic recovery.
The California Rans, whose principal and interest is payable exclusively from unapplied money in the state's general fund, are expected to be rated MIG1 by Moody's Investors Service, SP-1 by Standard & Poor's, and F2 by Fitch Ratings. California's long-term GO ratings stand at A1 from Moody's and A-minus from Standard & Poor's and Fitch.
The Texas Public Finance Authority is preparing a $1.2 billion sale of unemployment compensation obligation-assessment revenue bonds on behalf of the Texas Workforce Commission. They will be priced Thursday by senior book-runner Bank of America Merrill Lynch. The commission administers the state's unemployment insurance program.
Rated Aa1 by Moody's, AAA by Standard & Poor's, and AA-plus by Fitch, the Series 2010A bonds are structured to mature from 2011 to 2017.
Also, the Dallas Independent School District is readying $871.1 million of taxable school building bonds, which are slated to be sold in the competitive market Tuesday with a structure maturing from 2021 to 2035. The bonds are expected to be rated Aa2 by Moody's, A-plus by Standard &Poor's, and AA by Fitch.
In economic data released Monday, retail sales jumped 1.2% in October, well above economists’ estimates, the fourth consecutive monthly gain and the largest since March.
Excluding auto sales, retail sales increased 0.4% as motor vehicle sales jumped 5.0% for the month, the largest gain since March. Excluding auto and gasoline sales, retail sales increased 0.4% for the month.
Total retail sales for September were revised higher to a 0.7% gain from the 0.6% rise reported last month. Sales for August were also revised higher to a 0.9% gain from the 0.7% increase initially reported.
Economists expected retail sales would increase 0.7% and sales excluding autos would increase 0.4%, according to the median estimates from Thomson Reuters.
Business inventories increased 0.9% in September as sales increased 0.5%. Economists expected business inventories would increase 0.8% for the month, according to the median estimate from Thomson Reuters.
The Empire State Manufacturing Survey showed “conditions deteriorated in November for New York State manufacturers,” the Federal Reserve Bank of New York reported, as the general business conditions index fell into negative territory for the first time in more than a year, dropping to negative 11.14 in the month from 15.73 in October.
Economists surveyed by Thomson Reuters had expected the index would dip to 14.0.
Visible Supply
The Bond Buyer's 30-day visible supply fell $129.1 million to $17.174 billion. The total is comprised of $4.549 billion of competitive bonds and $12.625 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 41,862 trades of 15,480 issues for volume of $11.52 million. Most active was taxable Jersey City, N.J., 7.25s of 2040 that traded 239 times at a high of 103.465 and a low of 99.900.
