Trading activity was limited Tuesday as low supply and a lack of demand were an indication of a quiet municipal market.
Coming off of the Memorial Day holiday and into a four-day week, a trader in New Jersey said in addition to the low supply, there may be reduced trading this week because many investors will be on vacation.
"This is the type of week many people extend to take time off," he said. "I imagine volume will be light."
A lack of market participants on the trading floor is bound to drive down demand for munis.
"[Deals] may have to be somewhat cheaper if there is a sense there is not enough people around," he said. "That's the big obstacle."
A trader on the West Coast said the biggest issue this week will be making sure investors come to work and predicted the low trading volume from last week will continue through this week. Janney Capital Markets said in a report released on Tuesday that Friday's shortened session resulted in the lowest trading volume in a day since January.
"I think the market will be slow coming off of a long weekend," a trader in Chicago said. "Mondays have been bad enough the last couple weeks, and typically volume is low after a long weekend."
Total potential volume for this week is $4.2 billion, down from $6.2 billion last week, according to data compiled by Ipreo and The Bond Buyer.
Volume has been light the entire year totaling $89.34 billion through April 30, compared to $122.7 billion for the same period in 2013.
"There is becoming less and less to analyze, we need some sort of volatile event to put momentum back in the market," the trader in Chicago said. "I don't care if it goes up or down 50 basis points."
Airport and utility deals will dominate this week, Janney wrote.
The city of Chicago will issue $784 million of second lien revenue and revenue refunding bonds, the largest deal in the negotiated market, on Thursday. Barclays is the lead underwriter. The deal received an A3 rating from Moody's Investors Service and an A-minus from both Standard & Poor's and Fitch Ratings.
The second largest deal this week is $561.2 million of Massachusetts Water Pollution Abatement Trust state revolving fund refunding bonds. Bank of America Merrill Lynch is the lead underwriter and the deal is rated triple-A by Moody's, S&P and Fitch.
Janney also listed the Los Angeles Department of Water and Power's $322 million second lien revenue bonds as a top utility deal expected to price this week. The bonds are scheduled for retail order on Wednesday and will begin institutional sale on Thursday.
Barclays is bringing the issuance to market, and the bonds earned ratings of Aa3 from Moody's, and AA-minus from S&P and Fitch.
There are no negotiated deals totaling over $100 million scheduled to price on Tuesday, and no competitive deals over $100 million expected to come to market the entire week.
"The market is not moving, and no one cares about [explicative]," the trader in Chicago said.
There are no large deals in the competitive market this week.
Munis were mostly flat Tuesday, with yields on bonds in the three to four year maturities gaining as much as two basis points.
Yields on bonds maturing beyond 2018 and on the short-end of the curve were unchanged, according to the Municipal Market Data's triple-A scale.
The trader in New York mentioned that rising interest rates will impair issuers' ability to get deals done.
"There had been an overall short-term trend of seeing interest rates rise slightly in munis, and this will put some pressure on ability for deals to get spreads issuers would have gotten three weeks ago in marketplace," he said.
There was flattening across the curve with yields for two-year notes at 0.19%, according to Municipal Market Advisors 5% AAA Benchmark Scale.
The 10-year municipal bonds held steady at 2.21%, while the 30-year yields remained at 3.38%.
Treasuries strengthened Tuesday, with the 30-year yields fell three basis points to 3.37% and the 10-year benchmark gained one basis point at 2.52.
The two-year note was unchanged at 0.36%, from Friday's market close.
Secondary market trading showed mostly strengthening, according to data provider Markit.
Florida Hurricane Catastrophe Federal Finance Corp. revenue bonds with a 2.995% coupon maturing in 2020 fell one basis point to 2.74%.
Municipal Electric Authority of Georgia taxable bonds with a 6.637% coupon in 20257 slipped two basis points to 5.51%.
Massachusetts GOs with a 5% coupon in 2041 slid one basis point to 3.21%.
California various purpose GOs with a 5% coupon in 2043 gained one basis point to 3.74%.
