If you're a trader thinking that the municipal market has been unusually slow in 2014, you're not alone and it's not just you.
Recently released data from the Municipal Securities Rulemaking Board showed that trading in the second quarter of 2014 plunged from 2013, both in par amount of volume traded and number of trades. Between March and June, trading volume declined 11.8% to $739 billion, from $838 billion a year earlier. Number of trades was down more dramatically at 17.6%, to 2.24 million from 2.72 million.
The impact for traders has been tangible - and there's no end in sight.
"It's not good out there and I have no reason to think that anything's going to change soon," said a Midwest trader. "There's not much to bite at and once you find something it's been so chewed up already there's barely, if any, value left."
The commonwealth of Puerto Rico's GO bond led as the most actively traded bond by number of trades at 1,531 on its 8s of 2035, according to the MSRB data. In terms of par traded, the most actively traded security was a revenue bond from the Industrial development Board of the Parish of East Baton Rouge at $4.5 billion. The security is a variable rate Gulf Opportunity Zone bond for the ExxonMobil Project, according to MSRB's disclosure website EMMA.
Traders anticipate the trend of the second quarter to continue into the third quarter, which ends Sept. 30. The slowdown this summer has been more pronounced than the expected seasonal lull. While the secondary market has been sleepy outside of trading contingent on Puerto Rico news, the primary has been listless as well, forcing portfolio managers to reconsider the amount of rotation they hope to achieve.
This week will be no exception, with just $4.2 billion on the primary calendar. Of that, $593.7 million is the Rhode Island Tobacco Settlement Financing deal, which traders find unlikely to come to market this week as it stands contested in state court by OppenheimerFunds.
Monday was especially slow, with no deals over $10 million, competitive or negotiated, priced. The lack of primary activity sent traders into the secondary, searching for "off the beaten track" securities with hidden value, said a trader based in New Jersey.
Overall, the market weakened in the intermediate to long end of the curve on Monday, according to Municipal market Data's triple-A 5% scale. Bonds maturing in 2021 rose one basis point while those maturing in 2022 rose two. Bonds maturing between 2023 and 2024 and 2038 to 2044 weakened three basis points while those maturing between 2025 and 2037 increased two basis points in yield.
Weakness increased along the curve on Monday according to Municipal Market Advisors's triple-A 5% scale as well. The two-year note remained unchanged at 0.30% while the 10- and 30-year softened two and three basis points each to 2.11% and 3.28% respectively.
Treasuries showed similar weakness in trading on Monday. The two-year held steady at 0.42% while the 10- and 30-year rose four and six basis points each to 2.39% and 3.19% respectively.
