NEW YORK — A modest primary market dominated by three large deals will set the tone for municipals this week.
“There’s not much of a calendar to really speak of this week, although that’s where customer focus will continue to be,” a trader in New York said. “That’s where the value comes. Where the primary sets up is going to continue to drive the market.”
And though activity in the secondary is quiet thus far, the market is better-positioned, he added. There was a bottoming out of the secondary midweek, with somewhat of a continuation Thursday and Friday.
“Some of the syndicate positions that were overhanging in the market were able to get cleared away, granted at cheaper prices. But at least they’re out of the way. The Street’s in a lot better shape going into this week than it was going into last week.”
Tax exempt yields are seeing slight firming Monday. They were steady through six years, according to the Municipal Market Data scale. Beyond that, they are flat to two basis points lower.
The benchmark 10-year muni yield ticked up one basis point Friday to 2.56%, after dropping three basis points the previous session. It increased one basis point on the week and 59 basis points since it sat at a record low on Sept. 23.
The 30-year yield inched up one basis point, as well, Friday to 3.72%. On Thursday, it fell four basis points. The two-year yield held steady at 0.45% for a third consecutive session. The past week, it pushed two basis points higher.
Treasury yields are a tad firmer to start the week. The benchmark 10-year Treasury yield dropped three basis points to 2.22%.
The 30-year has slipped one basis point to 3.22%. The two-year yield has held steady at 0.27%.
The industry estimates the municipal bond market should see an expected $6.7 billion in new issuance this week. Last week’s number was revised downward to $4.5 billion.
Three deals in particular are expected to provide the lion’s share of the volume. In the negotiated market, Goldman, Sachs & Co. and JPMorgan are expected to price more than $2 billion of California debt in three parts.
The state is expected to issue $1.8 billion of tax-exempt, various-purpose general obligation bonds Tuesday. That is expected to be followed by $200 million of taxable various-purpose GO bonds and $132.9 million of remarketed Build America Bond GOs.
In addition, JPMorgan is expected to price $1 billion of New York City’s Hudson Yards Infrastructure Corp. fiscal 2012 Series A senior revenue bonds. Just six of the remaining deals in the negotiated market are expected to weigh in at more than $100 million.
On the competitive calendar, Pennsylvania is expected to issue $825.77 million of GOs Tuesday. Also, the Virginia College Building Authority is expected to sell $154.3 million of revenue bonds the same day.
In economic news, the Federal Reserve reported Monday that industrial production increased 0.2% in September. The number for August, which had previously been reported as a 0.2% gain, was revised to a flat level.
The Fed reported that industrial production increased at an annual rate of 5.1% for the third quarter as a whole. Capacity utilization for September inched up to 77.4%, following a revised 77.3% in August.
Economists polled by Thomson Reuters said the September gain mostly matched estimates. But September’s capital utilization increase fell below the 77.5% that economists Thomson Reuters polled had anticipated.
