NEW YORK — The municipal market is waiting for the institutional order period to begin Tuesday for California’s first general obligation issue of 2011, as well as some of the week’s other large new issues. The retail order period for the California GOs set the tone for the broader market Monday.
Otherwise, action in the secondary market is subdued, despite a fair amount of bid-wanted lists out, a trader in New York said.
“Everybody’s waiting for some of these larger deals, like Cal, to be officially priced in the institutional market,” he said. “You’re going to see the calendar guide the market for the next couple of weeks.”
Muni yields are slightly weaker from the middle of the curve on out, according to the Municipal Market Data scale. The muni yield curve continues to flatten as yields are steady out to 12 years. Beyond that, they’re flat to two basis points higher.
The 10-year muni yield remained at 2.13%, or six basis points up from the all-time low recorded early last week. The 30-year yield fell three basis points to 3.67%, and the two-year yield stayed at 0.32%
Treasuries were slightly weaker to start Tuesday’s session. The benchmark 10-year Treasury yield has risen two basis points to 1.97%. The 30-year yield has also weakened two basis points to 3.24%. The two-year yield has inched up one point to 0.17%.
Of late, munis have been vastly outperformed by Treasuries, which should attract some crossover buyer attention Tuesday, according to MMD analyst Daniel Berger. Muni-Treasury ratios jumped to 109.2% for 10-year credits, and to 114.3% for 30-year credits.
Volume is expected to be up significantly this week, roughly double the typical week this year. The industry anticipated $8 billion will come to market. This is up from the average $4.6 billion issued weekly thus far in 2011, and last week’s revised $6.2 billion.
Retail investors tore into California’s first GO issue of the year on Monday. Traders remarked how there might not be much in the way of serial bonds left for institutional investors Tuesday.
Retail investors ordered roughly $640.2 million of the $2.54 billion GO bond sale, the state Treasurer’s office reported. Yields for the deal, compared to the state’s last bond sale, in November 2010, show a much lower rate environment: 10-year maturities at 3.17%, compared to 4.23%; 30-year maturities at 4.80%, compared to 5.50%.
Other large competitive deals out of Massachusetts and Ohio are expected to arrive midweek.
One the economic front, the Commerce Department reported Tuesday that groundbreaking for new homes fell to a 571,000 unit seasonally adjusted annual rate in August. That’s down 5.0% from July.
Building permits were up 3.2% to 620,000. Starts for July were revised down to 601,000 from 604,000 reported last month. Building permits were revised up to 601,000 from 597,000 initially reported.
Economists polled by Thomson Reuters predicted both housing starts and building permits to be at a 590,000 level in August.
