Traders in the municipal bond market were left with few options on Thursday as a winter snowstorm across the northeast kept trading activity slow. Market participants expressed frustration with a lack of new bonds, as visible supply reached a new low this year.
The Bond Buyer's 30-day visible supply dipped to $4.36 billion Thursday, the smallest amount since Dec. 31. The expected calendar breaks down into $3.5 billion of negotiated bonds and just $860 million of competitive deals.
"It's disgusting," one trader in the Southeast said of the availability of bonds. "And now we're running into snowstorm issues all the way up from Charlotte to Boston."
Trading volume in the market may be down by as much as a third, the trader said.
Total par amount of bonds out for the bid was $620 million on Wednesday and $606 million Tuesday, according to Bloomberg data.
The year-to-date daily average of $548.2 million compares with $717.8 million averaged in the past year.
"We're probably even lower today than where we've been," the trader said.
New York City received 6.7 inches of snow by press time Thursday since the storm began, according to The Weather Channel. Snow and rain accumulating up to an additional four inches is forecast into the evening. "There's not much reaction to anything right now because of the weather today," one trader in New Jersey said.
"There are definitely people missing from the market," a trader in Chicago said.
While traders said the lack of supply has hurt liquidity and crowded the secondary market, the scant supply has supported municipal bond yields, even as treasuries fall.
"With the lack of supply we were still able to get out of their problems, there was so little in the primary they could kind of hold on even as treasuries were falling," the Chicago-based trader said. "Munis have mostly been resistant."
Treasury yields jumped Tuesday as Federal Reserve chair Janet Yellen made her first speaking appearance since ascending to the chair following Ben Bernanke's exit. Treasuries fell for two days before recovering Thursday, while munis remained mostly steady before strengthening Thursday.
"We're falling in line with treasuries as they rebound here," the trader in the southeast said. "We had this low sideways chop the last couple days to higher yields because some of that froth out of the treasury market. Now we've reversed off that with weak retail sales and claims this morning."
Initial jobless claims rose 8,000 in February to 339,000, the Labor Department said Thursday. Continuing jobless claims slipped to 2.953 million in the week ended Feb. 1, from the upwardly revised 2.971 million the week before, first reported as 2.964 million. Economists polled by Thomson Reuters expected 330,000 initial and 2.960 million continuing claims.
"I think it's encouraging a few buyers back in again," the southeast trader said. "Muni buyers have been preparing to buy in and they may be buying into the idea that rates aren't going up too soon with these numbers."
Earlier this week, the Fed Chair's testimony before the House Financial Services Committee indicated she expects "continuity" in the Federal Open Market Committee's policy, surprising some on Wall Street who perceived Yellen to be more dovish than Bernanke.
"Jobs data this week didn't really change where the Treasury market was going; I think it was a little anticipated," the Chicago trader said.
The New Jersey-based trader added that jobless claims wouldn't have much impact in a market with the current level of low issuance.
Market participants said some trading desks were empty Thursday, slowing down a municipal market that's already been hampered by a lack of new bond issues ahead of a three-day weekend.
"Issuance this month is not a drop in the bucket compared to what we need," the trader said. "Right now we need $10 billion a week to get rolling again."
Volume this week was estimated at just $2.65 billion, with $1.52 billion in negotiated deals and $1.14 billion in the competitive arena.
The lack of supply has favored issuers who are able to bring bonds to the market at low yields.
"A lot of bonds that have been leaving this market, maturing or getting called, and they're not getting replaced by any new bonds," the New Jersey-based trader said. "If we had the product, we could move it right now, but everything's that's coming is just too expensive," he added.
One deal not scheduled on the calendar that came Wednesday was $201.5 million of Dallas-Fort Worth International Airport revenue refunding bonds, led by Citigroup. Yields on the bonds ranged from 0.20% with a 1% coupon in 2014 to 4.70% with a 5% coupon maturing in 2032.
Bonds maturing in 2024 were offered with a 3.87% yield and a 4% coupon. Rated A-plus by Standard & Poor's and A by Fitch Ratings, the bonds are callable at par in 2023.
Municipal bond yields were lower Thursday, according to Municipal Market Data's AAA scale. Yields on bonds maturing in 2018 fell as much as two basis points, while those on bonds with maturities from 2019 to 2029 slid at least one basis point.
"It's been strong overall the last few days as it's been really tough to buy in the secondary market," the Southeast trader said. "There's not a lot to give people in the primary so they look to the secondary and it's plugging up the bid list."
Competitive deals this week got the most attention, the trader said.
"Underwriters are still trying to buy market's willingness to go under 5% coupons, which is interesting," the trader said. "Insurance companies especially are looking at the tightness of credit spreads in corporate bonds and it's making mid-to-late year maturities with those coupons more attractive. They'd rather get the yield."
Treasuries yields fell, with the 30-year moving three basis points lower to 3.69% and the 10-year falling four basis points to 2.75%. The two-year yield also slid two basis points to 0.33%.
