NEW YORK – The tax-exempt market is looking ahead to new pricings this week to provide direction, a break from last week when munis mainly followed Treasuries.
“Overall activity in the market felt relatively light last week and many market participants appear to be looking forward to some significant new issue pricings this week,” a New York trader said referring to the highly rated $385 million Tennessee pricing and the $830 million Dormitory Authority of the State of New York deal.
“Though we got bumps Friday and the technical factors remain favorable – mutual fund inflows and moderate supply – I am going into this week cautiously.”
Munis were steady across the curve Monday morning, according to the Municipal Market Data scale. On Friday, the 10-year yield dropped four basis points to 1.83% while the 30-year yield fell three basis points to 3.26%. The two-year held steady at 0.29%, the record low set Tuesday.
Treasuries were slightly weaker on news that Greece approved its latest austerity plan that will allow the country to qualify for financial assistance to avoid a default. The benchmark 10-year and 30-year yields rose two basis points each to 1.98% and 3.13%. The two-year was steady at 0.28%.
In the primary market this week, munis can expect $5.2 billion in new supply, up from last week’s revised $4.1 billion. On the negotiated calendar, $4.5 billion is expected to come to market, up from last week’s $3 billion. In competitive deals, $661.1 million is expected to be priced, down from last week’s $1.2 billion.
In the competitive market Monday, King County, Wash., is expected to auction $74 million of short-term notes, rated M1G-1 by Moody’s Investors Service and SP-1-plus by Standard & Poor’s.
Muni-to-Treasury ratios have increased as munis underperformed Treasuries and became cheaper. On Friday, the 10-year ratio closed at 93.4%, up from 90.8% the previous week. The 30-year closed up to 104.8% from 102.2%. The five-year ratio fell significantly, closing down to 82.5% from 87.2% the previous week.