Municipal bond buyers continued to hunt for high-yield products in the secondary market Tuesday morning as light issuance kept the market steady.
Puerto Rico's newly issued term bonds saw some firming as they settled into traditional municipal buyers' hands, even as trading activity slowed.
"Puerto Rico kind of came and went, and is not being traded over and over," a trading manager in New York said in an interview.
The Caribbean island was the eighth most-traded municipality in the market Tuesday, as more frequent issuers like California and New York reclaimed the bulk of market trading. Trading in Puerto Rico bonds was as much as 40% below the 100-day average this morning, according to Bloomberg data, and the commonwealth's new 8% coupon bonds maturing in 2035 occupied just 2% of the market.
"Our view on Puerto Rico is that it was a great trade for some the way it was priced, but we have been negative on the credit in the long term," said a trader based in Chicago. "We don't think this changes the long term outcome."
Yields on the 2035 bonds fell two basis points to 8.62% Tuesday. Many market participants are now looking to other sectors for high yield, traders and analysts said.
"We're focused on 25-years out on the curve in high-yield health care and high-yield senior living," the Chicago-based trader said.
The lack of issuance this week is causing investors to look to the secondary market for yield. Municipal bond issuance is projected to reach $3.29 billion this week, compared with $11.4 billion last week.
Volume of bonds traded Monday was the lightest in six weeks with $5.5 billion measured by the MSRB, Janney Capital Markets said in a report Tuesday.
"It's been pretty quiet the last 24 hours of trading," said the manager of fixed-income sales and trading based in New York. "What most of us have been doing is waiting for these new issues to hit."
The largest deal of the week will be issued by New York State's Environmental Facilities Corp.: about $345.5 million of state clean water and drinking water revolving funds revenue bonds. The deal will be led by Goldman, Sachs & Co. and is rated AAA by S&P and AA by both Moody's and Fitch.
Yields were steady on the front end of the curve Tuesday, according to Municipal Market Data, while bonds maturing from 2025 to 2026 climbed as much as one basis point and those from 2027 to 2044 jumped as much as two basis points.
Treasuries were mixed Tuesday morning, with the 30-year yield climbing one basis point to 3.64%, while the 10-year benchmark was unchanged at 2.70%. Two-year note yields slipped by one basis point to 0.37%.
