NEW YORK – Muni trading is off to a quiet start but the expectation is for the tone to be firmer thanks to a rallying Treasury market and broad support for California’s first general obligation deal of 2011.
“Demand was decent on Friday so we’ll see what the follow-through is like today,” said a trader in California, speaking of the state’s $2.6 billion GO deal. “If we get this deal done, things should go pretty well the rest of the week.”
About half of the California deal was offered to retail investors by co-lead managers Bank of America Merrill Lynch and Stone & Youngberg on Friday. Rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings, the bonds were priced with yields ranging from 1.13% in 2015 to 4.29% in 2028. More than 30 underwriters are working to sell the bonds.
An early read from Municipal Market Data shows yields dropping one to two basis points for long-term bonds. The scale is flat for bonds maturing between 2013 and 2030.
A giant rally in Treasuries is making muni-Treasury ratios more attractive than last week.
The benchmark 10-year Treasury yield is 10 basis points lower than its Friday close at 1.96%. The 30-year yield is also 10 basis points firmer at 3.21%, and the two-year yield is two basis points firmer at 0.15%.
The 10-year ratio is at 108.7% -- easily high enough to draw in crossover buyers. The 10-year California bonds, by Friday’s pricing, offer a ratio of 188%.
“The expectation is we’ll do good today,” the California trader said. “We have support from Treasuries.”
Munis were weaker in the final days of last week but traded at record highs earlier.
The 10-year muni yield finished at 2.13%, up six basis points from the all-time low recorded earlier in the week. It remains nine basis points lower than at the start of the month.
The 30-year yield stood still at 3.70%, four basis points higher on the week but 18 basis points under the Sept. 1 level.
