NEW YORK — Looking out over the market Tuesday, several factors augur for a challenging week for municipal bonds.
As news out of Europe improves somewhat, investors are looking for a potential rally in the equities markets to affect munis. In addition, last week’s supply leftovers will combine with this week’s coming volume to challenge sellers.
“We have a bit of an overhang of last week’s syndicate positions that have to be worked through,” a trader in New York said. “And we have a reasonable amount of supply coming through in a short week. So, the market’s got some wood to chop, and Treasuries aren’t really helping.”
Tax-exempt yields are steady Tuesday, according to the Municipal Market Data scale. The yield curve flattened further to end last week.
After nine straight sessions of firming, the 10-year muni yield rested — or, at least pared back earlier losses on the day. It held on the day at 2.55%, after surging 58 basis points since it sat at a record low on Sept. 23.
The 30-year yield ticked up one basis point to 3.71%. It has increased 27 basis points since mid-September. The two-year yield rose two basis points to 0.43%, and nine basis points on the week.
Treasury yields started the week largely flat. The benchmark 10-year Treasury yield held steady at 2.07%. Since Sept. 22, it has soared 35 basis points.
The 30-year also remained at 3.01%. It fell 60 basis points from Sept. 15 to Oct. 3, and has climbed 25 basis points since.
The two-year yield decreased two basis points to 0.28%.
The industry anticipates a small drop in volume this week. Roughly $6.93 billion is expected for the week, after $8.23 billion last week.
The bulk of deals this holiday-shortened week are negotiated. The competitive market expects a quiet four days.
The state of Washington is expected to issue the biggest deal of the week Thursday. JPMorgan is expected to price almost $1.3 billion of refunding bonds and new-money bonds, the state’s largest deal ever.
Bank of America Merrill Lynch is expected to market $750 million of New York City’s Transitional Finance Authority bonds. Citi is expected to price almost $600 million of Tennessee GO bonds in two pricings.
The week’s calendar is lower than last week’s. But it is still above average for the year, and otherwise sizeable for the four-day week.
“A significant new issue calendar for this holiday shortened week, may pose a challenge,” Janney Capital Markets’ Tom Kozlik wrote in a morning research brief, “but higher absolute yields may draw in more demand.”
