Municipal bonds and Treasuries on the short end of the curve held steady or better on a quiet Monday as concern over rising interest rates eased.
Prices firmed after Federal Reserve chairwoman Janet Yellen said the U.S. job market will need assistance from low interest rates "for some time," during a community reinvestment conference in Chicago early Monday.
Yields maturing in the first six years were unchanged, while yields maturing beyond 2036 gained as much as two basis points according to the Municipal Market Advisors triple-A 5% scale.
Muni yields softened with bonds maturing from 2021 to 2035 jumping as much as two basis points, while yields on bonds maturing beyond 2036 also climbed as much as two basis points. Bonds maturing in the short term held steady, according to the Municipal Market Data Scale.
The move pared losses in short-term bonds that weakened for more than a week after Yellen said on March 19 that interest rates could rise earlier than the market expected. Yields on short-term bonds, which many traders said had been overvalued, soared in the following week of trading. Investors took Yellen's remarks as an indication that even though the Fed will proceed to taper its monthly bond purchases, which have kept long-term rates low, they are in no rush to raise short-term rates.
"It reinforces that the Fed is in no hurry to make big changes; that's a positive," a New York trader said. "The market always likes to be reassured."
A trader based in Chicago added: "There was a bit of confusion since the last time she spoke, so it's a little reassuring."
Yellen said rates should remain low to prompt borrowing, spending and economic growth.
"I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely held by my fellow policymakers at the Fed," she said at the conference.
Trading activity has been limited in the primary market due to buyer hesitation as issuance remains low as the quarter comes to a close. The approaching April 15 tax deadline also reduced investors' willingness to make any trades.
"There's not much going on," a trader based in New York said. "There's a weaker tone in the market today. The end of the quarter and tax season plays into this."
While activity in the primary market remains sluggish, the secondary will probably reveal more, a trader based in the West Coast said, as trading is heavier on the long end because of the flattening from the prior week.
"It's been a slow day; it started to pick up in the afternoon," the Chicago-based trader said. "The market is a little stronger throughout the curve. There's good demand. There's a little bit of strengthening all over."
New York City's water and sewer system revenue bonds have been the most actively traded bonds Monday, followed by California GOs.
Puerto Rico issuers' bonds were the fifth most actively traded earlier on Monday, with its Housing Finance Authority bonds the top traded. The commonwealth's general obligation bonds were the third-most actively traded Puerto Rico bonds.
The total potential volume scheduled for this week's new issuance calendar is $4.19 billion, down from last week's $4.78 billion issuance.
"New issuance is low this week, but [the deals] may offer some support once [they] come in," the West Coast trader said.
Low supply continues to plague the market, as two to three mega-deals carry most of the week's issuance.
"The University of California deal is the benchmark deal. There's nothing more key that will change the market," the trader said. The two-fold University of California deal totaling about $968.2 million is expected Thursday. The deal consists of $559.4 million of tax-exempt revenue bonds and $408.8 million of taxable revenue bonds.
Wells Fargo Securities will bring the tax exempts to market. The bonds mature serially from 2017 to 2034, with terms in 2044 and 2049. The retail order period is scheduled to begin on Wednesday.
Goldman, Sachs & Co is the lead underwriter for the taxable bonds, while Wells Fargo is the joint book-runner. An indication of interest period begins on Wednesday. The deals are rated Aa2 by Moody's Investors Service and AA by Standard and Poor's.
There were no deals over $100 million slated for issuance in the competitive market on Monday.
In the negotiated market, Goldman Sachs was scheduled to price for retail $261.1 million of dedicated unlimited-tax ad valorem property tax GO bonds and refunding bonds for the San Diego School District, the largest deal of the day. The bonds are rated Aa3 by Moody's and AA by S&P.
Treasury yields were mixed Monday afternoon, as the 10-year benchmark gained two basis points to 2.73% and the two-year note inched up one basis point to 0.44%. The 30-year yield slid one basis point to 3.56%.
