NEW YORK – The markets will look at big deals Tuesday for direction as retail buyers continue to wait to jump into the market.
“There are some big deals today that will do something here,” said a trader in New York, adding that until the bigger deals hit the market later Tuesday, things will be fairly quiet. “We don’t see any change in the market as of yet.”
The trader said Howard County, Md., which is coming to market with $193.8 million of general obligation debt, will set the tone. “Everyone is looking at it. It’s a name everyone loves,” he said.
But the market will look to other deals too, the trader said. “It’s a competitive deal, with no spreads. The market needs more than that.”
Retail buyers are also sitting on the sidelines, the trader added. “There is institutional money out there but the retail is now following yet.”
The Municipal Market Data scale had yet to update tax-exempt yields at press time.
In Monday’s session, the benchmark 10-year muni yield closed at 2.43%. It remained 46 basis points above the record low it held on Sept. 23. The two-year yield held steady at 0.45% for the eighth consecutive trading session. The 30-year finished Monday at 3.72%.
Tuesday morning, the Treasury curve was flattening as yields on the long end fell. The benchmark 10-year Treasury yield dropped two basis points to 2.22% and the 30-year fell two basis points to 3.25%. The two-year held steady at 0.29%.
And munis continue to outperform Treasuries as muni-Treasury ratios fall. The 10-year ratio decreased to 109% from 128.4% only three weeks ago, according to MMD. Similarly, the 30-year ratio decreased to 113.8% from 128.6%.
In the primary market, competitive issues should grab headlines. After the Howard County deal, Illinois is expected to sell $300 million of sales tax refunding debt.
But these large issues are creating a cautious tone in the market, according MMD analyst Randy Smolik. “Primary supply is large enough to create uncertainty as to how much concession is needed to place this week’s deals,” he said. “Quality spreads have been inching out but the general mood seemed a little drifty to start.”
The market will also look to former Treasury Secretary Henry Paulson’s scheduled afternoon speech on the U.S. and China.
